2022 Special Servicing Rates – What is a Ground Lease?

Source: Trepp

The Trepp CMBS Special Servicing Rate rose 13 basis points in August to 4.92 percent—slightly above the July print. Six months ago, the rate was 6.08 percent, and 12 months ago, the rate was 7.79 percent.

This is the first time the rate has increased since 03’2020. In August 2022, the distress was concentrated in the retail and multifamily sectors, which saw 117 and 67 basis point jumps, to 11.03 percent and 1.90 percent, respectively.

The percentage of loans on the servicer watchlist rose 26 basis points to 21.34 percent.

August CMBS data has the makings of an inflection point. After struggling during COVID, the current economic environment may have hampered what retail borrowers hoped would be a full recovery. Companies like Bed Bath & Beyond and Cinemark have announced store closings and Chapter 11 filings which may indicate a I larger trend in the CRE market. This month’s large retail transfers were heavily tied to regional and superregional malls that were transferred due to imminent monetary default. This may indicate the lack of belief that the market has in some of the non-A Class malls and the retail sector as a whole going forward.

—Posted on Sep. 28, 2022

Source: Trepp

The Trepp CMBS Special Servicing Rate fell 12 basis points in July to 4.8 percent. Six months ago, the rate was 6.3 percent and 12 months ago, the rate was 8.1 percent. A property type that saw the largest improvement in July was the retail sector, which reported special servicing rates of 9.9 percent (60-basis point drop).

The percentage of loans on the servicer watchlist fell 128 basis points to 21.1 percent, its lowest reported rate in 2022. July CMBS data continued to promote the narrative that despite turmoil in the wider economic sectors, the commercial real estate market is isolated. Issuance has fallen off, specifically in what was a thriving CRE CLO market, but distress has continued to recede despite mounting economic concerns. When the pandemic first happened, it was easy to explain the low distress as a by-product of COVID loan extensions and forbearance, but the markets continued ability to weather distress speaks to the safety of the market post Great Financial Crisis regulations and changes to deal structures.

However, market participants are still cautious as there is ample room for refinance risk, and the future of the office market continues to loom somewhere in the distant background. New Transfers Approximately $372.8 million in CMBS debt was transferred to a special servicer in July. New retail transfers made up 40 percent of the newly transferred and was followed closely by mixed-use transfers which made up 23.7 percent. The largest loans to transfer this month were the $66.63 Arbor Walk and Palms Crossing and the $65.08 Southland Center Mall.

The Arbor Walk and Palms Crossing is made up of two power centers totaling 792,000 square feet in Texas. The Shops at Arbor is 464,700 square feet and located in Austin. Roughly 178,000 square feet of space is leased to a Home Depot and four out-parcels who own their own stores but are subject to ground leases with the borrower. Palms Crossing is a power/lifestyle center consisting of seven anchor buildings and four inline buildings with tenant spaces ranging from 1,036 square feet to 10,500 square feet. The loan was transferred due to imminent default related to the loan’s upcoming maturity. The Southland Center Mall is a 905,000-square-foot mall in Taylor, Mich. Its currently largest anchor tenant is JCPenney and first quarter of 2022 occupancy was reported as 91 percent. The loan was also transferred for imminent monetary default at the borrower’s request after they indicated to the master servicer, they may be unable to payoff prior to maturity. It was set to mature on Aug. 10.

For overall property types CMBS 1.0 and 2.0+, the industrial rate went down six basis points to 0.3 percent, office went up 24 basis points to 3.5 percent and retail went down 60 basis points to 9.9 percent. For CMBS 2.0+, industrial went down six basis points to 0.1 percent, office up 31 basis points to 3.1 percent and retail down 50 basis points to 9.0 percent. For CMBS 1.0, industrial went up 35 basis points to 77.6 percent, office down 325 basis points to 38.9 percent and retail down 75 basis points to 70.7 percent.

—Posted on Aug. 25, 2022

Source: Trepp

The Trepp CMBS Special Servicing rate fell 21 basis points in June to 4.9 percent. Six months ago, the rate was 6.8 percent and 12 months ago, the rate was 8.2 percent.

The percentage of loans on the servicer watchlist inched up one basis point to 22.4 percent, breaking what had been a streat of eight consecutive months of declines.

Despite the loan cures representing a positive sign for CMBS and the greater commercial real estate market, elsewhere the Trepp CMBS delinquency rate rose six basis points. It is too early to tell whether a new trend is emerging, but special servicing rate increases in the coming months would not be surprising considering the current interest rate and economic environment.

Approximately $341.1 million in CMBS debt was transferred to a special servicer in June. Two thirds of the newly transferred balance was made up of retail and office loans. A noteworth transfer included the $60.4 million Trenton Office Portfolio.

The overall US CMBS 2.0+ special servicing rate is 4.5 percent. One year ago that was 8.0 percent and six months ago it was 6.3 percent. For property types, the industrial rate for CMBS 1.0 and 2.0+ went down six basis points to 0.40 percent, while office went down 13 basis points to 3.2 percent.

—Posted on Jul. 27, 2022

Source: Trepp

The Trepp CMBS Special Servicing Rate fell 18 basis points in May 2022 to 5.1 percent. Six months ago, the rate was 7.0 percent and 12 months ago, the rate was 8.7 percent.

The percentage of loans on the servicer watchlist fell to 22.4 percent. This is the eighth consecutive month of declines in the rate.

Distress rates continue to decline despite the recent volatility in the stock market, painting the picture of a CMBS market that has yet to take any collateral damage. Loans continue to cure, and the market is showing a sign of resiliency–cementing itself as as different financial environment than the one we saw during the Great Financial Crisis. Additionally, spreads have widened but issuers move ahead with quoting loans and deals continue to come to market.

Approximately $772.5 million in CMBS debt was transferred to a special servicer in May. The overall US CMBS 2.0+ special servicing rate is 4.8 percent. One year ago that was 7.9 percent and six months ago it was 6.8 percent. The overall CMBS 1.0 special servicing rate is 40.4 percent. One year ago that was 47.2 percent and six months ago it was 41.2 percent.

For overall property type analysis CMBS 1.0 and 2.0+, industrial went down seven basis points to 0.5 percent, while office went up one basis point to 3.4 percent. For 2.0+, industrial went down one basis point to 0.2 percent and office went up eight basis points to 2.9 percent. For 1.0, industrial went down 225 basis points to 76.0 percent, while office went down 280 basis points to 44.3 percent.

—Posted on Jun. 22, 2022

Source: Trepp

The Trepp CMBS special servicing rate fell 36 basis points in April to 5.3 percent. Six months ago, the rate was 7.2 percent, and 12-months ago the rate was 9.0 percent.

The office sector, specifically, is worth keeping an eye on. The office special servicing rate has increased 25 basis points since February 2022. Looking even further back, the office special servicing rate fell as low as 2.3 percent in October 2021, but despite the beginnings of flexible returns to the office, the rate has been above 3.0 percent since December 2021, and at 3.4 percent is posting its highest rate of the past two years.

The percentage of loans on the servicer watchlist fell 37 basis points to 23.5 percent. This is the seventh consecutive month of declines in the rate. Approximately $1.09 billion in CMBS debt was transferred to a special servicer.

The overall CMBS 2.0+ rate is 4.9 percent, where one year ago it was 8.3 percent and six months ago it was 6.7 percent. The overall CMBS 1.0 rate is 32.3 percent. One year ago that was 47.3 percent and six months ago it was 41.9 percent.

The industrial special servicing rate went down nine basis points to 0.5 percent for CMBS 1.0 and 2.0+, while office went up 20 basis points to 3.4 percent. For CMBS 2.0+, industrial went down five basis points to 0.2 percent and office increased 23 basis points to 2.8 percent. For CMBS 1.0, industrial went down 3,565 basis points to 21.1 percent and office went up 544 basis points to 51.9 percent.

—Posted on May 23, 2022

Source: Trepp

The Trepp CMBS Special Servicing Rate fell 42 basis points in March to 5.7 percent. Six months ago, the Trepp special servicing rate was 7.5 percent, and 12-months ago the rate was 9.4 percent. The percentage of the loans on the servicer watchlist fell 37 basis points to 25.5 percent. This is the sixth consecutive month of declines in the rate.

Approximately $668.3 million in CMBS debt was transferred to a special servicer in March. The overall US CMBS 2.0+ special servicing rate is 5.4 percent. One year ago, the US CMBS 2.0+ special servicing rate was 8.7 percent, while six months ago, the US CMBS 2.0+ special servicing rate was 7.0 percent. The overall US CMBS 1.0 special servicing rate is 41.5 percent. One year ago, the US CMBS 1.0 special servicing rate was 47.4 percent, while six months ago the rate was 41.7 percent.

For overall property types CMBS 1.0 and 2.0+, the industrial rate went down 9 basis points to 0.62 percent, while office went up 5 basis points to 3.2 percent. For CMBS 2.0+, industrial went down 4 basis points to 0.3 percent, while office increased 5 basis points to 2.6 percent. For CMBS 1.0, industrial webt up 28 basis points to 56.7 percent, while office was up 11 basis points to 46.4 percent.

—Posted on Apr. 27, 2022

Source: Trepp

The Trepp CMBS Special Servicing Rate fell 25 basis points in February to 6.1 percent. Six months ago, the Special Servicing rate was 7.8 percent, and 12 months ago the rate was 9.6 percent. The percentage of loans on the servicer watchlist fell 21 basis points to 25.9 percent. This is the fifth consecutive month of declines. Approximately $270.5 million in CMBS debt was transferred to a special servicer in February. The new transfers were heavily made up of loans backed by office properties, which equated to $175.9 million of the newly transferred balance.

In a 2019 edition of TreppWire we noted that namesake tenant Wells Fargo was planning to relinquish 100,000 square feet at the Wells Fargo property in the portfolio. A new anchor tenant was announced, and another tenant renewed, but servicer commentary for this month notes that the loan was transferred due to imminent monetary default as a result of the COVID-19 pandemic. Other noteworthy transfers include the $46.7 million Princeton South Corporate Center office loan and the $36.6 million 55 Green St. office loan.

The overall US CMBS special servicing rate is 6.1 percent in February. One year ago, the US CMBS special servicing rate was 9.6 percent. Six months ago, the US CMBS special servicing rate was 7.8 percent. The overall US CMBS 2.0+ special servicing rate is 5.6 percent. One year ago, the US CMBS 2.0+ special servicing rate was 8.9 percent. Six months ago, the US CMBS 2.0+ special servicing rate was 7.3 percent. The overall US CMBS 1.0 special servicing rate is 43.4 percent. One year ago, the US CMBS 1.0 special servicing rate was 47.4 percent. Six months ago, the US CMBS 1.0 special servicing rate was 42.1 percent.

For CMBS 1.0 and 2.0+, the industrial special servicing rate went up 7 basis points to 0.7 percent, while office went down 10 basis points to 3.1 percent. For CMBS 2.0+, the industrial special servicing rate went up 3 basis points to 0.3 percent, while office went down 8 basis points to 2.6 percent. For CMBS 1.0, the industrial special servicing rate went up 390 basis points to 56.4 percent, while office went down 54 basis points to 46.3 percent.

—Posted on Mar. 25, 2022

Source: Trepp

The Trepp CMBS Special Servicing Rate fell 42 basis points in January to 6.3 percent. One year ago, the US special servicing rate was 9.7 percent. The percentage of loans on the servicer watchlist fell for the fourth consecutive month with 26.1 percent of loans reported as on the servicer watchlist, a drop of 38 basis points from the December reading.

Approximately $289.9 million in CMBS debt was transferred to special servicing in January. The office, multifamily, and mixed-use sectors made up 85.4 percent of the of the month’s newly transferred balance. The largest of these transfers was the $59.6 million Writer Square mixed-use loan. The 186,200 square foot property was built in Denver in 1980 and renovated in 2016. The loan had been monitored since its DSCR dropped from 1.30x at year-end 2019 to 0.87x at year-end 2020, and then 0.72x per a June 2021 report. Servicer watchlist notes indicate that the property has been negatively impacted by the pandemic, leading to the lower reported DSCR and a slight dip in occupancy (reported as 76% in June 2021 in comparison to its normal range of ~ 85%). Another noteworthy transfer included the $59.3 million TEK Park (MSBAM 2016-C31) office loan.

Six months ago, the US CMBS special servicing rate was 8.1 percent. The overall US CMBS 2.0+ special servicing rate is 5.9 percent. One year ago, the US CMBS 2.0+ special servicing rate was 8.9 percent. • Six months ago, the US CMBS 2.0+ special servicing rate was 7.5 percent. The overall US CMBS 1.0 special servicing rate is 43.5 percent. One year ago, the US CMBS 1.0 special servicing rate was 49.9 percent. Six months ago, the US CMBS 1.0 special servicing rate was 45.9 percent. For CMBS 1.0 and 2.0+, the industrial rate went up 4 basis points to 0.6 percent, while office went down 4 basis points to 3.2 percent. For 2.0+, industrial went up 4 basis points to 0.3 percent, while went down 4 basis points to 2.6 percent. For 1.0, industrial went up 129 basis points to 52.5 percent and office went up 699 basis points to 46.8 percent.

—Posted on Feb. 28, 2022

 Finance, Newsletter Graph, Trepp Inc. 

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2022 Commercial REIT Dividend Yields – What is a Ground Lease?

Values shown are average by property type. As of Sep. 2, 2022.
Source: S&P Global Market Intelligence

As of August 31, 2022 publicly traded U.S. equity REITs posted a one-year average dividend yield of 2.91 percent.

The office REIT sector recorded the highest one-year average dividend yield among this group, at 3.33 percent, outperforming the broader Dow Jones Equity All REIT Index by 0.41 percentage points. The industrial REIT sector followed with a one-year average dividend yield of 2.41 percent, outperforming the 10-Year T-Note by 22 basis points.

Anthony Collins is an Associate in the Real Estate Client Operations Department of S&P Global Market Intelligence.

If you are interested to learn more about the products and services available within S&P Global Real Estate data, please visit us here: https://www.spglobal.com/marketintelligence/en/campaigns/real-estate

—Posted on Sep. 28, 2022

Values shown are average by property type. As of Mar. 31, 2022.
Source: S&P Global Market Intelligence

As of March 31, publicly traded U.S. equity REITs posted a one-year average dividend yield of 2.7 percent.

The office REIT sector recorded the highest one-year average dividend yield among this group, at 3.2 percent, outperforming the broader Dow Jones Equity All REIT Index by 0.44 percentage points. The industrial REIT sector followed with a one-year average dividend yield of 2.3 percent, outperforming the 10-Year T-Note by 71 basis points.

Winzen Matamorosa is a Senior Associate in the Real Estate Client Operations Department of S&P Global Market Intelligence.

If you are interested to learn more about the products and services available within S&P Global Real Estate data, please visit us here: https://www.spglobal.com/marketintelligence/en/campaigns/real-estate

—Posted on Apr. 27, 2022

 Dividend Yield 

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CBRE Investment Management Buys Life Science Campus for $288M – What is a Ground Lease?

Park Point. Image courtesy of CBRE Investment Management

CBRE Investment Management continues adding to its life science holdings with the purchase of Park Point, a 662,607-square-foot life science campus at Research Triangle Park in Durham, N.C., on behalf of a separate account client. Starwood Capital Group sold the five-building, 95-acre campus to the global real assets investment management firm for $288.1 million, public records show.

An affiliate of Starwood Capital Group and its partners Trinity Capital Advisors and Vanderbilt Partners acquired Park Point for $37 million in July 2019. The site had been vacant since 2016 when the former prime tenant, Nortel Networks, left after declaring bankruptcy. The joint venture spent more than $120 million renovating the property, which reopened in 2021 and offers flexible space solutions for innovative office, life science and good manufacturing practice uses. The property is also entitled for an additional 2.2 million square feet of development.

Amenities at the campus located at 4001 NC Highway 54 include a fitness center, café, indoor/outdoor common areas, athletic fields, walking trails, 2,546 parking spaces and a conference and training center. Park Point also has new, efficient systems that reduce energy and water consumption and enhance air quality. Electric vehicle charging stations will be installed at the property.

The Class A property aligns with the firm’s commitment to invest in life science assets as the demand for modern, responsive life science properties remains strong to provide specialized, customizable spaces required for scientific research.

READ ALSO: Why These CRE Sectors Provide Safer Harbors

Sondra Wenger, head of Americas Commercial Operator Division for CBRE Investment Management, said in a prepared statement life science end-users have very specific and sophisticated needs for lab and research space and they believe Park Point meets those needs and fits well with the firm’s investment strategy.

Wenger pointed to the property’s location at Raleigh-Durham’s Research Triangle Park as an asset because of its solid economic fundamentals. The Research Triangle attracts a strong base of scientific talent and is located near leading education and medical institutions. She also highlighted Park Point’s features including shared space, flexibility, technology and wellness options. Park Point has easy access to Interstate 40, N.C. Highway 54 and Davis Drive. Raleigh-Durham International Airport is within 5 miles of the Durham campus.

Tenants include Charles River Laboratories, which signed a 70,369-square-foot lease with the former owners in January 2021 to occupy the first and second floors at the three-story Edge West building. GRAIL Inc. leases 200,000 square feet and is working on an early cancer detection platform. Restor3d, a medical equipment manufacturing company, is slated to take 50,225 square feet between the Edge West building and Grid building starting in early 2023, according to the Triangle Business Journal.

Earlier life science deals

CBRE Investment Management, formerly known as CBRE Global Investors, had $146.9 billion in assets under management as of June 30. In July, a joint venture between a fund sponsored by CBRE IM and a public REIT acquired 300 Third St., a 132,000-square-life science property in Cambridge, Mass., from Alexandria Real Estate Equities. CBRE IM is the majority owner of the property that comprises a six-story building with lab and office space, and a restaurant. The property is fully leased to Alnylam Pharmaceuticals and the retail space is occupied by Fuji at Kendall, a sushi restaurant. It was the second life science property investment in the market within three months. In April, CBRE IM acquired an equity stake in a 432,931-square-foot building at 100 Binney St., also from Alexandria Real Estate Equities.

 Featured, Health Care, Investment, News, Raleigh-Durham, South, CBRE Investment Management Fund, Starwood Capital Group 

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L’Oréal to Open $140M New Jersey Facility – What is a Ground Lease?

Clark New Jersey facility rendering. Image courtesy of L’Oréal USA

L’Oréal will open a new research and innovation center in Clark, N.J. The $140 million project will replace the company’s existing facilities in the New Jersey area.

The new development marks the largest investment L’Oréal has made into a research and innovation facility. Once the center is complete, the company will move out of the current space it has occupied in the area for more than 60 years.

Currently under construction, the facility is anticipated to begin operations in 2024. A nearly 250,000-square foot-space will house more than 550 employees in L’Oréal’s North America Research & Innovation Division, including Advanced Research, Evaluation and Product Development.

READ ALSO: Why the Single-Tenant Net Lease Sector Could Be Past Its Peak

The facility will be used to conduct internal research through Green Sciences and Beauty Technology on hair, skin and makeup.

Along with the L’Oréal team, the facility is designed to support the company’s innovation strategy and be home to external partnerships, including scientific developments. Workspaces and modular labs will aid in the development of new products.

The space is designed with sustainable standards to reduce energy use and minimize waste production and resource consumption. An indoor and outdoor green space will be constructed to support the environment.

L’Oréal’s current headquarters is in New York City. Earlier this year, the beauty company also opened a second headquarters in El Segundo, Calif., a city in Los Angeles County.

 Development, Featured, Industrial, Investment, News, Northeast, L’Oréal USA 

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TA Realty Pays $134M for 2 Inland Empire Assets – What is a Ground Lease?

120 Puente Ave.

TA Realty has purchased two Inland Empire industrial facilities for $133.5 million from JCS Properties. The firm paid $92 million for a 253,670-square-foot complex in City of Industry, Calif., and $41.5 million for a 140,276-square-foot warehouse in Corona, Calif. Stream Realty Partners represented the buyer in the off-market transaction.

The deal immediately follows TA’s $90.5 million acquisition of Green Valley Corporate Park, a 415,107-square-foot industrial campus in Fairfield, Calif. Another recent high-profile transaction in the area was Winsford Corp.’s sale of a 106,088-square-foot warehouse in Ontario, Calif., also brokered by Stream.

READ ALSO: Top 5 Markets for Industrial Construction Activity

Completed in 1988 at 451 N. Cota St., the Corona warehouse has 11 dock doors and three drive-in loading bays. The property was 43 percent leased at the time of sale. JCS had purchased the building in 2021 for $30.2 million, CommercialEdge data shows.

The City of Industry facility came online in 1998 at 120 Puente Ave., featuring a mix of warehousing, cold storage and office space. The property features 140- to 220-foot truck courts and an employee training center, as well as a full on-site kitchen and bar area. Classic Beverage of Southern California is the building’s sole tenant, according to CommercialEdge data.

Both buildings are adjacent to the Riverside Freeway, giving them quick shipping, logistics and transit access to Los Angeles and the Port of Long Beach.

The Stream brokerage team was led by Senior Vice Presidents Stefan Pastor and Brad Yates.

The Inland Empire, king of industrial

The Inland Empire remains both a regional and nationally-ranked industrial powerhouse, posting the nation’s lowest vacancy rate of 0.9 percent, with some 36 million square feet of space in its construction pipeline and a year-to-date transaction volume of $3.2 billion as of August, according to a CommercialEdge report. Due to its location and clientele, the region is also the most expensive for industrial investment and leasing in the U.S., with the per-square-foot sale price clocking in at $336.

 Deals, In Focus, Industrial, Inland Empire, News, West, JCS Properties, Stream Realty Partners, TA Realty 

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IRG Launches Build-to-Suit Project Near Port of Virginia – What is a Ground Lease?

Rendering of the new distribution facility. Image courtesy of IRG

Industrial Realty Group LLC has reached an agreement to develop a 227,000-square-foot distribution facility in Suffolk, Va., close to The Port of Virginia. RoadOne IntermodaLogistics, a distribution and logistics company, will fully occupy the new building. Harvey Lindsay Commercial Real Estate represented both parties in the leasing negotiations.

The Port of Virginia is at the forefront of technological improvements and is one of the fast-growing shipyard complexes in the U.S., with $1.4 billion invested in innovative equipment, Stephan Edwards, CEO & Director of Virginia Port Authority, said in prepared remarks.

Industrial Realty did not disclose additional details on the project. The company acquired the 40-acre lot in June 2022. The development will include cross docking and is designed for efficient transportation to aid the movement of cargo from the Port of Virginia to other U.S. markets. The property’s proximity to the busy Port of Virginia was one of the main factors that attracted RoadOne to the project.

The Port of Virginia’s advantages

The project is based on a strategic initiative that aims to facilitate the connectivity between RoadOne’s shipper clientele and its national network. The 277,000-square-foot industrial facility is IRG’s third build-to-suit project near the Port of Virginia, an area where there is great demand for industrial space, said Stuart Lichter, president of IRG. The project is expected to gain significant investment and to bring 100 new jobs. The developer is anticipating delivery in the third quarter of 2023.

Harvey Lindsay Commercial Real Estate’s Senior Vice President & Director of Industrial Brokerage, Industrial Sales and Leasing, Charles Dickinson, worked on behalf of both parties during the lease agreement.

In July, the company signed a ground lease for a 50-acre development parcel in New Orleans, for a future 1 million square feet build-to-suit industrial project. Earlier this year, the company announced its plans to develop two other industrial properties, including an approximately 910,000-square-foot, two-building project in Suffolk, and a 72,000-square-foot facility Portsmouth, Va., designed to fulfill the needs of Unis LLC.

 Development, In Focus, Industrial, Leasing, Mid-Atlantic, News, Industrial Realty Group, Stuart Lichter 

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Granite Properties Tops Out DFW Office Building – What is a Ground Lease?

Granite Properties has topped out Granite Place II at Southlake Town Square, a 143,500-square-foot office building in Southlake, Texas. The five-story, Class AA property at 601 State St. is rising adjacent to the 100 percent occupied Granite Place I, the first phase of the project.

In June, the developer secured $39 million in construction financing for the second stage of Granite Place, provided by Bank OZK. N5B Capital, the joint venture equity partner for Granite Place II, is planning to relocate its headquarters to the building.

Corgan is in charge of the design, while DPR Construction is the general contractor. Construction commenced in May 2022 and is expected to deliver in the first quarter of 2023.

Providing the Class AA experience

Amenities of the second phase will include an outdoor meeting space, fitness center, food service, touch-free entries and fixtures in restrooms, floor-to-ceiling windows and covered parking. The building is planned to achieve LEED and Fitwel certifications. Granite Place II will also comprise move-in ready office spaces, averaging between 1,900 and 3,300 square feet, designed for short-term leases.

Situated at Southlake Town Square, in proximity of Hilton Dallas hotel and EVO Entertainment, the property is adjacent to State Highway 114, close to multiple retail and dining options and roughly 8 miles from DFW International Airport. Granite Place I came online in 2017 at 550 Reserve St. and has a tenant roster that includes Wells Fargo Advisors, Baker Avenue Wealth Management and OS National, according to CommercialEdge.

Granites’ in-house leasing team formed of Senior Director of Corporate Leasing Robert Jimenez and Leasing Managers Burson Holaman and Elizabeth Fortado are in charge of marketing Granite Place II. 

 Dallas, Development, News, Office, Slideshows, South, Bank OZK, Corgan Architects, DPR Construction, Granite Properties 

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Global Property Fund Returns Remained Strong despite Regional Divergence – What is a Ground Lease?

Fund Return by Region

Source: MSCI Global Quarterly Property Fund Index

Asset Return by Region

Source: MSCI Global Quarterly Property Fund Index

Global real estate funds delivered another positive performance in the second quarter of 2022. A quarterly fund-level total return of 4.0 percent saw the annual return of the MSCI Global Quarterly Property Fund Index accelerate to 23.7percent. While this was the highest annual return since the index’s inception in March 2008 there was a growing divergence among the different region’s fund returns. While North American funds saw their annual fund return reach a new high of 29.2 percent, Asia Pacific domiciled funds experienced a dip in performance as their annual return weakened to 11.2 percent. UK and Continental Europe domiciled funds reported annual fund returns of 19.2 percent and 17.8 percent which were 40bps down and 40bps up respectively from the quarter before.

While the index’s fund-level return reached another new high, the property-level return simmered slightly as it slowed 30bps to 20.1 percent. Among the regions, North American real estate funds had a particularly strong first half of the year as its asset-level return accelerated to 23.2 percent p.a. followed by the United Kingdom at 20.3 percent and Continental Europe at 15.4 percent. While Asia Pacific domiciled funds saw their returns slow, the region’s performance still compares favourably across longer time horizons. In fact, since the index’s inception in 2008, it is the top performing region with an annualised compound total return of 7.5 percent.

 Global 

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Commercial/Multifamily Mortgage Debt Outstanding Increased by $99.5 Billion in Second-Quarter 2022 – What is a Ground Lease?

Source: Mortgage Bankers Association

$ in billions

Source: Mortgage Bankers Association

The first half of 2022 saw more commercial and multifamily borrowing and lending than any previous January through June period. The second half of the year will be different.

The level of commercial/multifamily mortgage debt outstanding increased by $99.5 billion (2.3 percent) in the second quarter of 2022, according to MBA’s second-quarter 2022 Commercial/Multifamily Mortgage Debt Outstanding report. Total commercial/multifamily mortgage debt outstanding rose to $4.38 trillion at the end of the second quarter. Multifamily mortgage debt alone increased $35.7 billion (1.9 percent) to $1.9 trillion from the first quarter of 2022.

Just how strong were things at the start of the year? The $99.5 billion increase in commercial and multifamily mortgage debt outstanding in the second quarter was the second largest quarterly rise since the inception of MBA’s data series in 2007. The increase in holdings by depositories was the largest on record.

Commercial banks continue to hold the largest share (38 percent) of commercial/multifamily mortgages at $1.7 trillion. Agency and GSE portfolios and MBS are the second-largest holders of commercial/multifamily mortgages (21 percent) at $919 billion. Life insurance companies hold $648 billion (15 percent), and CMBS, CDO and other ABS issues hold $613 billion (14 percent).

MBA now expects a slowdown in the second half as developers, buyers, sellers, lenders and others all adjust to the continuing changes in market conditions.

 Finance 

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Industry Embraces Reshoring Initiatives – What is a Ground Lease?

Image by alacatr/iStockimage.com

As supply chain challenges, geopolitical volatility and climate change continue to pose threats, industrial players are exploring reshoring production of goods to the U.S. The semiconductor industry has already taken the first steps in this process, facilitated by the recently adopted CHIPS Act and the Inflation Reduction Act, the latest CommercialEdge monthly industrial report shows.

On the other hand, reshoring will post its own set of challenges thanks to its complexity. Pressing issues include the scarce availability of supply and labor pools. Firms will likely adopt automation solutions and increase costs on the long-term, given the fact that domestic labor costs are much higher than offshored manufacturing.

READ ALSO:  Is Industrial’s Boom Era Ending?

The nation’s under-construction pipeline featured 704 million square feet of industrial space at the end of August, representing 4 percent of existing stock. According to CommercialEdge, factoring in planned projects pushes the rate to 7.6 percent of existing stock, predicting that supply levels will continue to increase despite concerns of a recession and rising interest rates and construction costs.

As of August, the markets with the largest pipelines on a percentage of existing stock basis were Phoenix (44.8 million square feet under construction, 15.2 percent of stock), Indianapolis (26.4 million, 8.2 percent) and Dallas (59.5 million, 7 percent). Meanwhile, industrial sales volume year-to-date as of August amounted to $57.6 billion.

Rents continue to rise in port markets

National in-place rents for industrial space continued their upward trajectory, averaging $6.64 per square foot at the end of August, CommercialEdge data shows. Average rents increased by 550 basis points year-over-year and four cents month-over-month. Rent growth throughout the last 12 months was led by port markets such as the Inland Empire (8.8 percent increase), Boston (8.0 percent), Los Angeles (7.4 percent) and New Jersey (7.4 percent).

The national industrial vacancy rate was 4.1 percent in August, a 30-basis-point decrease from the previous month. Unsurprisingly, Southern California, major logistic hubs and coastal markets had the tightest vacancies, with the Inland Empire (0.9 percent), Columbus (1.8 percent), Los Angeles and Indianapolis (2.0 percent each) leading the way.

Read the full CommercialEdge report.

 CommercialEdge Reports, Industrial, National, CommercialEdge 

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DataBank Completes 6th SLC Data Center – What is a Ground Lease?

SLC6 in Bluffdale, Utah. Photo courtesy of DataBank

Salt Lake City’s data center market continues to grow. DataBank has finished construction on its sixth facility in the metro, situated within its Granite Point campus in Bluffdale, Utah. On Nov.15, the developer plans to hold a grand opening event for the 171,000-square-foot data center.

SLC6 features two new data halls, comprising a total of 100,000 square feet of raised floor space. Half of this space is currently available, while the second half will be completed at a later date.

DataBank plans to bring online a total of 22 megawatts at SLC6, of which 11 megawatts will be made available on day one, while the rest will be deployed in the future. This makes the newly constructed facility the largest within the Granite Point campus.

SLC6 will become operational next month. DataBank cited the growing demand for IT infrastructure in the region as the main reason behind the expansion. Clients will have access to 13 on-site carriers via SLC6’s direct fiber connection to DataBank’s SLC1 carrier hotel. The facility is located at 14870 S. Pony Express Road, adjacent to the other buildings within the campus. SLC6 meets a variety of compliance requirements, including HIPAA, PCI-DSS, SSAE-18 SOC1 and SOC2, GDPR and FISMA.

The 23-acre Granite Point campus comprises 268,000 square feet of raised floor space, offering 34.8 megawatts of IT load. It also features its own, 66-megawatt power substation that has an N+1 configuration and diverse A/B feeds, provided by Rocky Mountain Power. According to DataBank, the low cost of power is one of the main reasons why expanding its footprint in the region is economically feasible.

Growing footprints

DataBank currently operates a total of 74 facilities across the U.S., which comprise 2.6 million square feet of raised floor space and offer 303 megawatts. The company expanded in Houston earlier this year—DataBank purchased four facilities for $670 million from CyrusOne, growing its footprint by 300,000 square feet of raised floor space.

According to JLL research, Salt Lake City is currently experiencing a surge of new supply, with existing and new providers looking to expand their footprints. Preleasing is becoming more common, as the current capacity—157 megawatts as of June this year—is unable to keep up with demand levels. Besides DataBank, other providers expanding in the market include Aligned Data Centers and Novva. According to the same source, there are 405 megawatts in the planning and permitting stages in Salt Lake City.

 Data Center, Development, News, West, DataBank, JLL 

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Top 5 NYC Office Building Sales—August 2022 – What is a Ground Lease?

Source: PropertyShark, a Yardi Systems Inc. company75 N. Seventh St., Brooklyn

Sale Price: $24,100,000

Largo Investments sold the four-story building totaling 18,994 square feet in Williamsburg. First Republic Bank facilitated the transaction with an $11.7 million acquisition loan. The ground floor is home to SPEAR, a physical therapy practice with more than 25 locations across New York City. Nearby transportation options include the L subway line at the corner of Bedford Ave. and N. Seventh St. as well as the B32 bus line at the Wythe Ave. and N. Nineth St. intersection.

2. 25 W. 31st St. #12, Manhattan

Sale Price: $4,750,000

A private investor sold the commercial unit, which is part of a 12-story office building totaling 60,133 square feet in Koreatown. Completed in 1912, the high-rise was last renovated in 1985 and includes 3,500 square feet of retail space. In early 2020, unit 11 fetched $4.5 million, while eight years previously units 7 and 8 traded for $2.1 and $2.8 million, respectively.

3. 1600 Avenue M, Brooklyn

Sale Price: $2,100,000

After nearly a three-decade ownership, The Dime Community Bank, previously known as the Dime Savings Bank of Williamsburgh, sold the property totaling 3,800 square feet in Midwood. Burke Leighton Group acquired the bank building with two commercial units. The asset last traded in late-1993, when Hamilton Federal Savings F.A.—now part of Capital One—sold the two-story building completed in 1931.

4. 2509 Avenue U, Brooklyn

Sale Price: $1,600,000

A private investor sold the 3,080-square-foot office building in Madison. Bank of America provided a $1.4 million acquisition loan, guaranteed by the United States Small Business Administration. Completed in 1925, the two-story low-rise is home to Baron Associates P.C. Nearby transportation options include subway lines B and Q at the southeast corner of 15th St. and Avenue U.

5. 40-48 Junction Blvd., Queens

Sale Price: $1,301,000

A private investor sold the 2,680-square-foot building in Elmhurst, which last traded a decade ago for $750,000. Completed in 1927, the two-story structure encompasses two commercial units and includes Hispaniola Pediatrics P.C. among its tenants. The office low-rise is easily accessible, near subway line 7 at the corner of Junction Blvd. and Roosevelt Ave. and within a mile of Long Island Expressway and the Grand Central Parkway.  

 New York, Northeast, Office, Office (NYC Spotlight), Bank of America 

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The CDO Stack: Cyber Risk in Real Estate – What is a Ground Lease?

It’s a big topic that, according to a recent Deloitte survey, is on the minds of our real estate clients across the globe. We asked 450 CFOs what might have the biggest negative impact on their financial performance in 2023, and cyber risk tied with workforce dynamics and sustained high inflation as the threats or challenges that they’re most worried about. The results made me wonder why cyber risk ranked so high, and I think the answer is twofold.

John D’Angelo

First, high-profile examples of cyber crimes have been plentiful in the news recently, so it’s no surprise that threats have intensified. Second, I believe the steps required to identify, monitor, manage and mitigate cyber risks are inadequately understood in the commercial real estate industry. Put simply, the bad guys are probably far ahead of us, we seem to know that, and there’s general concern that the gap will cost us in financially.

Not to give you more to worry about, but in the cause of building awareness, let’s look at some of the forms that cyber crimes can manifest in the real estate industry.

With buildings becoming more connected and smarter, the amount of data streams within a building and the number of systems and devices has risen dramatically. All that data and all those different systems represent cyber-crime opportunity that ranges from mischief to deadly threats.

One recent example involves an office building that had to be evacuated as cyber criminals accessed a building management system and raised the temperature to triple digits. While not life-threatening, it’s a good example of what can happen if the building management system or individual building systems are compromised. A friend who leads asset management at a big real estate investor confided in me that one of her nightmares is getting a call that a cyber-criminal has control of an elevator car with people in it being held for ransom. A nightmare indeed.

Taking action

Theft and ransomware have long been cyber threats to the industry. With criminals becoming increasingly organized and sophisticated, and the volume and dollar amount of transactions in the industry being high, it’s not surprising that attacks are on the rise. Particularly for those sectors in which personally identifiable consumer information is stored, understanding data sensitivities and vulnerabilities is important. And there are internal threats to consider. Understanding what digital information is leaving an organization, with whom, and for what purpose are all topics that should be addressed if they haven’t already been.

Regardless of the type of threat, it’s important to have at least a broad understanding of the nature and potential implications of cyber threats. Whether through a single leader or distributed team, your level of expertise, plans, and activities should match the threats specific to your organization and adapt to them.

It’s also important to understand that cyber risk isn’t static. I’ve written a great deal about the form and substance that digital transformation is taking in the industry. While digital transformation is great, it introduces change in exposure that needs to be addressed in lock step with the transformation.

Regardless of your organization’s size, complexity and level of cyber maturity, following the 4 A’s—assure, advise, anticipate, and accelerate—will help you get on track and stay there. “Assure” requires  taking the steps required to validate the effectiveness of your cyber program. “Advise” means key stakeholders collaborating, understanding, and prioritizing cyber risks and activities based on the unique circumstances of your organization. “Anticipate” refers to taking the actions required to evolve your cyber program as your company and its technologies change. And “accelerate” calls for raising organizational awareness of cyber threats and ensuring you’re prepared to act when weaknesses or threats are discovered.

If you’re not sure where your organization stands, ask internal audit, IT leadership, and your information security leaders about these key issues:

what risks are unique to your organization
how you know when digital information leaves the organization
what controls are in place to monitor your information supply chain (including external vendors and suppliers),
what plans are in place for incident response and communication.

If you’re already asking these questions and are happy with the answers, congratulations! You’re at the front of the pack.

John D’Angelo is a managing director with Deloitte and is the Firm’s real estate solutions leader, designing solutions to address client challenges and push the industry forward. With over 30 years of experience as a management consultant to the global real estate industry, John has helped some of the biggest names in real estate leverage technology and use data to optimize and transform their operations.

 CFO Corner, Digital Edition 

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Net Zero in CRE Is Easier Said Than Done – What is a Ground Lease?

“We now have some investors asking specifically about the carbon footprint and carbon emissions of individual assets in our funds,” said Peter Epping, global head of ESG, Hines. “They want to understand how a fund is dealing with its carbon footprint and how quickly it will be reduced over time and brought to net zero.”

Just a few years ago, commercial real estate companies that set net zero carbon dioxide emissions goals were singled out for their proactive regard for the environment. Today, however, given the escalating climate crisis and the hyper-focus on ESG, net zero goalsetting is becoming the norm, and the pressure to show verifiable progress and to expand the scopes of reduction targets is mounting.

Hines’ 555 Greenwich in New York was designed to reduce energy emissions from a traditional Class A building by 45 percent and to align with a 1.5-degree Celsius Carbon Risk Real Estate Monitor pathway and the goal of a carbon-neutral New York by 2050. The design process and construction practices implemented at Hines’ 555 Greenwich can serve as a roadmap for climate-conscious building in New York City and beyond by integrating geothermal piles, thermally active radiant slabs, a dedicated outdoor air system, and a fully electrified heating system. Image courtesy of Hines

Net zero definitions and pathways within commercial real estate vary since not all companies are prescribing to the same net zero standard. A report released earlier this year by MSCI “Breaking Down Real Estate Net Zero Targets,” identified four different commitments that real estate investment and service companies worldwide have officially aligned with: the 1.5 degree Celsius Science-Based Targets Initiative, as well as a 2 degree Celsius commitment; Greenprint’s Center for Building Performance’s Net-Zero carbon operations commitment; The Better Building’s Partnership Climate Commitment; and the World Green Building Council’s Net Zero Carbon Buildings Commitment.

Add to that list the International Future Institute’s Zero Carbon Certification, and the USGBC’s LEED Zero, a complement to LEED certification that recognizes buildings that reach net zero targets in carbon, energy, water and waste. LEED Zero Carbon recognizes net zero carbon emissions (from energy consumption through carbon emissions avoided or offset over a period of 12 months.

Due to the variety of pathways and investors’ eagerness to sniff out “greenwashing,” net zero commitments are also under greater scrutiny.

“To understand where a CRE company is on its path to net zero, or decarbonizing, means looking further at the company’s projections, its planned improvements to reduce GHGs, what it is including in its scope and whether its investments are in line with that plan,” said Elizabeth Beardsley, senior policy counsel, U.S. Green Building Council.

Empire State Realty Trust has been purchasing 100 percent green-e certified REC’s for the Empire State Building since 2011 and 100 percent renewable wind power for its entire commercial portfolio since 2021. ESRT Trust has partnered with 18 Reserves and ACT to support the preservation of biodiverse forest ecosystem to offset 100 percent of non-electric fossil fuel usage. Image courtesy of Empire State Realty Trust

Limitations of Scope

Broadly, net zero means balancing out the carbon emissions produced with the carbon emissions removed or avoided, but the commitments CRE companies have signed on to vary somewhat in terms of timelines, emissions scopes they include, and how much offsetting they allow–if they allow offsetting.

Net zero is a concept that has drawn criticism from some in the scientific community because it doesn’t assume that an entity will lower its emissions. They just need to balance them out. Offsetting is also controversial for some scientists.

Most formal net zero commitments for U.S. property companies to date have covered operational emissions or net zero energy—Scope 1 and 2 emissions. Emissions across the value chain or Scope 3 emissions are more challenging to track and tackle, though real estate companies are working hard to get a handle on tenant-controlled emissions and, along with the AEC community, discovering new ways to reduce or eliminate carbon in construction materials and minimize waste,

But companies may soon need to expand the breadth of their net zero commitments. The SEC’s proposed climate disclosure rule would require public companies of a certain size to report on their climate change risks, include Scope 1, 2 and 3 emissions, of which there are 15 categories, according to GHG Protocol. If passed these rules would undoubtedly have an impact on not just REITs and public real estate companies but the industry as a whole.

According to MSCI, targets set by property funds should be “comprehensive,” including scope 1, 2 and 3 emissions and development activities; “ambitious,” pursuing absolute short- and long-term reductions in line with science-based targets and “feasible,” with demonstrated progress toward goals and a supported business strategy. 

In addition to worsening climate and increased investor demand, rising levels of building emissions regulations on the state and local levels also prompting property owners to make net zero pledges. Earlier this year, the Biden Administration announced that 33 states and cities have committed to pass Building Performance Standards legislation or policies by Earth Day 2024, representing 20 percent of U.S. buildings.

The Need for Speed

The team at aer, a Hines property in Munich, is addressing operational and embodied carbon through refurbishments. Hines intends to transform an existing structure into an efficient, high-quality building by using timber and hybrid construction to reduce embodied carbon. Hines is utilizing geothermal energy and ecological electricity to optimize operations and implementing interior greenery to improve air quality and occupant well-being at aer, a building located in Munich. Image courtesy of Hines

The Intergovernmental Panel on Climate Change finds the planet has only 12 years to limit temperature rises to under 1.5 degrees Celsius. The IPPC report suggests that 61 percent of global building emissions could be reduced by 2050, with the largest share of mitigation potential coming from new buildings in developing countries, and the renovation of existing buildings in developed countries.

“It’s encouraging to see so many CRE companies setting zero emissions goals, but we need to act with greater urgency,” said Ralph DiNola, CEO of New Buildings Institute. “If they set a 2040 or 2050 goal, we need to ask: What are you doing this year, next year, and in the next decade to get on the right path?”

Hines has set a target of net-zero operational carbon in its building portfolio by 2040. The firm’s aer property in Munich is addressing operational and embodied carbon through refurbishments. Hines intends to transform an existing structure into an efficient, high-quality building by using timber and hybrid construction to reduce embodied carbon. The company is also utilizing geothermal energy and ecological electricity to optimize operations and implementing interior greenery to improve air quality and tenant well-being.

Empire State Realty Trust was an early adopter of net zero strategies. The company began reducing its emissions back in 2007 and proved the business case for investing in deep energy retrofits, reducing emissions at the Empire State Building by 54 percent and across its entire portfolio by 43 percent since then. The firm adopted a definition of net zero to mean an 80 percent reduction in emissions from its commercial building operations, with the remaining 20 percent of emissions offset by proven strategies.

The biggest challenge to the industry’s progress toward net zero is education, notes Dana Robbins Schneider, senior vice president & director of Energy, Sustainability & ESG at Empire State Realty Trust. “Design professionals, equipment providers, contractors and owners must become more knowledgeable about the facts of what is possible technically and economically. They must stop repeating the mistakes of the past and learn about the technologies and paybacks that exist.”

Read the October 2022 issue of CPE.

 Digital Edition, Sustainability 

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How Rising Interest Rates Impact CMBS – What is a Ground Lease?

CMBS lending has been muted this year. Interest rate hikes, soaring inflation, market volatility and eroding confidence and other factors are to blame.

Increased interest rates particularly impact lending because higher rates place pressure on debt service, increasing cost to borrowers, said Constantine (“Tino”) Korologos, NYU clinical assistant professor and founding principal of Leonidas Partners LLC. In addition, higher debt expenses can also blend with equity return expectations, hiking cap rates.

Source: statista.com

Higher cap rates impact values because NOI and cap rate are indications of value. If the NOI doesn’t rise, downward pressure on value ensues. “Given economic pressures on expenses from inflation, and concern about recessionary conditions, it’s possible to see the numerator—revenue less expenses—actually go down,” said Korologos, co-author of the upcoming textbook, Real Estate Capital Markets; Evaluation, Structure and Participants. “This could amplify the affect of higher rates on value.”

Higher rates, uncertainty and market volatility could spur bond investors who purchase CMBS to look for higher yields on their bonds to capture elevated risk, he added. These factors introduce greater near-term sensitivity to market changes.

If a silver lining exists, it may be the secured nature of the collateral, commercial real estate assets, Korologos added, noting this sector has long been a comfort and safety haven for domestic and international investors.

The response of CMBS to rising interest rates can be an economic bellwether, said Joseph Cioffi, partner at law firm Davis+Gilbert LLP. That’s because cash flows reflect the health of economic sectors from retail to industrial.

Thus far, interest rate volatility has introduced additional uncertainty into an already shifting post-pandemic economy and, by extension, secondary market. “The uncertainty for both lenders and borrowers is reflected in the sharp drop in new issuances in June and July, after a good start to the year,” Cioffi added.

Pluses and Minuses of CMBS

An attractive aspect of CMBS is that by design, it is non-recourse to borrowers. If borrowers comply with the lender’s agreement, they can always “give the keys back,” and avoid being held personally responsible, Korologos said.

CMBS loans also typically come with fixed-rate coupons, which counter today’s rising interest rates, said Rajul Sood, head of commercial lending solutions at research analytics and business intelligence provider Acuity Knowledge Partners.

CMBS furnishes lenders with capital release and liquidity and offers real estate investors higher yields compared to government bonds. The attractiveness of CMBS for investors also results from its varied investment options, as well as its more flexible options for workout over an extended period, unlike conventional lending.

“The COVID-19 pandemic has established CMBS’s resilience to economic distress,” Sood said. In the current environment, this security type is being structured more conservatively, and boasts stronger deal fundamentals and underwriting standards.

Source: WealthManagement.com

But with inflation near a 40-year high and the pandemic creating volatility, CMBS financing has come under pressure, Sood added. Rising interest rates, along with usually higher loan-to-value may reduce debt coverage ratios on floating loans, making these loans and investments riskier.

At a time when commercial real estate struggles to regain pre-COVID levels, investors remain spooked by prospects of new variant outbreaks, high energy costs and inflation’s negative impact on cap rates and occupancy levels in troubled retail, office and hospitality sectors. “This may lead to high refinance risk for some sectors witnessing double-digit erosion in property values stressing LTVs,” Sood opined.

Thirty Capital Financial CEO Kevin Swill said the only attractive aspect of CMBS today is the ability to lock in a rate for 10 years and sleep through the night knowing that rate can be handled for the next 10 years. The downside is volatility and the velocity with which increased interest rates peak and start turning downward. “What is your threshold to accepting a rate and being able to sleep at night?” he asked.

Forecasting future

Trepp’s CMBS Delinquency Rate ticked higher in June for just a second time in almost two years. The delinquency rate hasn’t been impactful or concerning for originators, though, said Maverick Commercial Mortgage president and founder Ben Kadish. “It’s interest rates that are slowing the market down,” he added.

A month after that uptick, the Trepp CMBS Delinquency Rate declined 14 basis points month-over-month in July to 3.06 percent. That reinforced notions the June numbers were not conclusive, Sood said. Though delinquency rates improved in July, inflation continues to drive revenue and expenses, hurting overall income.

The trend in delinquency rates must be monitored over the next several months to fully grasp how current economic events impact the CMBS market, she said.

Economic sentiment seems to presage moderate CMBS lending over the next several years, Sood added. An Urban Land Institute survey estimated subdued commercial real estate transaction volume of $735 billion next year, and $750 billion in 2024, both lower than the record-setting $846 billion last year and projected $800 billion this year.

“Widening spreads and a weakening economy are hinting at shrinking investor demand—already evident in this year’s volumes—effects possibly lingering into 2023, given recessionary fears,” Sood reported. “Also, the pipeline of CMBS loan maturities for 2023 is high, $70 billion, with the majority of office and hotel loans having weaker metrics, [such as] high LTVs and lower debt yield, culminating in likely elevated refinance risks.”

As well, she said, composition of CMBS portfolios may expand beyond the typical five property types, in the process gaining traction from would-be investors.

In the near term, Cioffi observed, valuation stands to be of paramount concern for CMBS lending given turbulence buffeting the market, especially in the office sector. If performance weakens and battles erupt over loss allocation, valuation disputes will probably be at the center of the donnybrooks.

“Market uncertainty and losses may seed fertile ground for disputes over projected net operating income and occupancy levels, and the role of valuation in setting key loan ratios such as debt service coverage or loan to value,” he said.

Read the October 2022 issue of CPE.

 Digital Edition, Finance 

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Transaction Highlights: October 2022 – What is a Ground Lease?

The Foundry I and II. Image courtesy of Tishman Speyer

SALES

PropertyAsset TypeLocationBuyerSellerNotes/Arranged ByValueDate AnnouncedRancho Vista Corporate CenterOfficeSan DiegoAppleSwift Real Estate Partners –$445 Million26-JulThe Webb @ LBJOfficeDallasEvoque Data Center SolutionsDigital Realty –$205 Million16-AugLegacy Union – 650 South TryonOfficeCharlotte, N.C.Highwoods PropertiesLincoln Harris, Goldman Sachs Asset ManagementThe buyer closed the deal on 08/17.$201 Million10-MayThe Foundry I&IIOfficeAustin, TexasBeacon Capital PartnersTishman SpeyerCushman & Wakefield represented the seller in the transaction.$200 Million11-AugElliot 202IndustrialMesa, Ariz.California State Teachers’ Retirement SystemMarwest Enterprises –$187 Million15-Aug1245 Beech RoadIndustrialNew Albany, OhioPreylock Real Estate HoldingsVanTrust Real Estate –$157 Million26-Jul

FINANCING

PropertyAsset TypeLocationType of FinancingLenderArranged ByBorrower / NotesAmountDate AnnouncedVantage Ashburn Data Center Campus VA 11IndustrialDulles, Va.RefinanceWilmington Trust –Vantage Data Centers$499 Million2-Aug23-30 Borden Ave.IndustrialLong Island City, N.Y.ConstructionStarwood Capital Group, JPMorgan ChaseEastdil Secured Innovo Property Group, Atalaya Capital Management, Nan Fung Group$435 Million25-JulCalifornia PortfolioIndustrialNationalRefinanceNew York Life Insurance Company –AXA Real Estate, Dermody Properties$355 Milion27-Jul1601 BroadwayOfficeNew York, N.Y.RefinanceArgent Ventures –Vornado Realty Trust$320 Million26-JulWaikiki Galleria TowerOfficeHonoluluAcquisitionMaruito Group USA –BlackSand Capital$185 Million30-JulJames R. Thompson CenterOfficeChicagoAcquisitionGoogle –The Prime Group$156 Million28-Jul

To have your transaction featured, submit details to Agota Felhazi at agota.felhazi@yardi.com.

Read the October 2022 issue of CPE.

 Digital Edition, Finance 

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Michael Lavipour on Seizing Opportunity in a Fluid Investment Market – What is a Ground Lease?

With interest rates and inflation still rising, many traditional lenders are taking a step back. But private debt and equity investors like Square Mile Capital LLC are seeing an uptick in opportunity. CPE interviewed Michael Lavipour, Square Mile’s managing director for credit strategies, on shifting dynamics in the capital markets and positions worth taking. 

Square Mile has been very active lately in different property types. With institutional lenders stepping back, how is Square Mile reacting to that shift?

One of our benefits is that we offer a lot to our borrower base. We have capital for construction loans, for value-add deals and for stabilized assets too, all across the country. We probably have over 40 senior funding counterparties.

In a market where some banks are pulling back, and sponsors don’t have access to the same relationship (with) banks that they normally do, that allows us to pick off deals that are lower-leverage, higher-quality sponsorships, better projects, at higher ultimate yields for our investors.

Our strategy doesn’t shift tremendously. When the markets aren’t very stable, you have to spend more time thinking about each deal and how it fits and why it works. There’s going to be opportunities. We’re going to try to hit them as they come.

What are the main capital markets and investment indicators you’ll be watching during the last part of the year?

Michael Lavipour

Number one is inflation broadly, and then the resulting impact on interest rates. In this environment, there’s more concern that rental growth may not match inflation. So there could be a situation where rates are up, inflation’s up, and they’ll start to have an impact on cap rates.

Bank capital levels are another indicator. We have a confluence of events that’s making bank balance sheets full. There’s a lack of roll-off of loans they thought were going to roll off. There were loans that were intended to be syndicated that haven’t been syndicated. There were loans that were originally intended for the CMBS marketplace that became balance-sheet loans. And then with the rising interest rates, many of the projected payoffs haven’t happened.

Bank liquidity is going to be really important for this sector broadly, specifically for us as a leveraged lender.

In which property categories and regions do you see the greatest opportunities? Square Mile has had a flurry of life science transactions recently.

Toward the end of last year and the beginning of this year, the biggest opportunities we saw were in the multifamily sector. Now we’ve started to see a lot more opportunity in logistics space, either development, or people acquiring assets at completion, but not leased. That’s been a big part of our transaction volume.

That’s still a fairly active market on the development side, because notwithstanding headlines about Amazon subleasing space, there’s a pretty robust market for demand for some of the 3PL users, and we’re still seeing good rental growth.

We’ve also had a pretty big opportunity set, as you noted, in the life science space, trying to focus on the top 10 or so life science operators, largely in purpose-built, new developments. Though there’s been an interesting dynamic in the life science sector where you can take an existing building that meets most of the characteristics and convert it faster than building ground-up.

600 South Tryon, Charlotte, N.C. Square Mile Capital provided $184 million in construction financing for the tower, scheduled for completion in 2024. Image courtesy of Square Mile Capital

And there’s been major bank pullback from that sector, and that’s created real opportunities for us to get outsized returns while facilitating new development.

We’ve very selectively looked at office. I think there’s consensus that for a top 10, 20 percent building, there’s going to be real demand. The question is: Where does that percentile cut off in terms of where there’s going to be real demand for office space?

We’re in a really interesting period right now, because there’s a fundamental change in how people are using real estate, on the office side and on the retail side, (as well as in) logistics to some degree. A lot of the older stock just doesn’t meet the needs of where tenants want to be.

There is a flight to newer product because newer product is being designed somewhat differently for the first time in a while. People are creating flexible real estate that allows them to shift to meet the demand of the times. It’s pretty cool, when you think about it.

Are there any regions or asset categories that are being overlooked?

I think people are overlooking some of the major urban areas. There’s been a big flight on the investment side to Canada, the Southeast and Texas. I think some of the northern urban markets are being overlooked. I wouldn’t bet against New York, long term.

What are the main challenges for the investment and capital markets?

There’s a confluence of real estate’s fundamental changes with capital markets changes, like lack of liquidity. One of the main challenges for investment is, with all these shifts, there’s not a meeting of the minds between buyers and sellers, so there’s just less transactional volume.

If you think about how we source deals, either on the investment sales side, an asset is trading hands and somebody needs new financing or it’s on the refinancing side, or it’s on the development side. Investment sales activity is down dramatically, and no one’s refinancing, because interest rates are up. Development probably still works now, because somebody bought a site two years ago. The rental growth since they’ve bought that site has outpaced increases in interest rates and construction costs. But that’s starting to slow down too.

One of the biggest challenges is just that the supply of potential transactions is down. The converse side is the amount of players who have capital ready, willing and able to lend is down as well.

It actually has made for a pretty good environment for a group like us, which has many different pockets of capital, to be able to pick off opportunities we like. In some cases, those are deals we wouldn’t even have seen three or six months ago. They would have been gobbled up by banks.

Square Mile Capital originated a loan secured by Empire West, Stream Realty Group’s just-completed 3.2 million-square-foot industrial asset in Brookshire, Texas. Image courtesy of Square Mile Capital

 Are there any issues the industry needs to be paying more attention to?

I don’t think people realize how many office buildings will change hands over the next 12 months. If you were sitting in an office building that was 85 percent leased, and over the last two years that occupancy has slowly dropped as tenants’ lease terms have rolled, and you have interest rates growing, owners will have to make decisions about reinvesting in assets. There’s going to be a bunch of distress in the not–top 10 (to) 20 percent of office buildings across the country.

Read the October 2022 issue of CPE.

 Digital Edition, Executive Insights, Square Mile Capital Management 

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First Industrial Inks Full-Building Lease in Philadelphia – What is a Ground Lease?

2801 Red Lion Road. Image courtesy of Colliers

International Vitamin Corp. has signed a full-building lease with First Industrial Realty Trust for a 180,171-square-foot industrial facility in Philadelphia. IVC will move into the building in the first quarter of 2023, after the existing tenant, TJX, relocates to a larger facility at 9801 Blue Grass Road, just 2 miles from the current location. Colliers Senior Managing Director Richard Gorodesky and Senior Associate Adam Gorodesky represented the landlord.

First Industrial acquired the property in 2005 for $7.1 million, CommercialEdge data shows. Built in 1969 and renovated in 2011, the warehouse at 2801 Red Lion Road is one of the largest single tenant industrial facilities in Philadelphia. The facility features 20- and 26-foot clear heights, 25 dock doors and a truck court, as well as some 13,800 square feet of office space.

The 10.9-acre property is just off Roosevelt Boulevard, with Northeast Philadelphia Airport 2.5 miles away and 15 miles from downtown Philadelphia. Other industrial facilities in the area include Atkore, Quaker Valley Foods, Veho Philadelphia, Marshalls Distribution Center and United Refrigeration, among others.

According to CommercialEdge, First Industrial Realty Trust’s national industrial portfolio totals 236 million square feet across more than 1,140 buildings. In Philadelphia, the company currently owns 16 properties, both completed and in various stages of development.

 Industrial, Leasing, News, Northeast, Philadelphia, Colliers International, First Industrial Realty Trust, International Vitamin Corporation 

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$110M Self-Driving Systems Plant Opens in Texas – What is a Ground Lease?

The new Continental facility in New Braunfels, Texas. Image courtesy of Continental

Continental, which manufactures parts for autonomous driving systems, has completed a $110 million, 215,000-square-foot facility in New Braunfels, Texas. The new plant is located about 15 miles from another Continental facility in Seguin, Texas.

The Germany-based company—which also has facilities in Auburn Hills, Mich., and Santa Barbara, Calif.—held a ribbon-cutting ceremony Tuesday to mark the end of the construction process that began in 2020, but was delayed by the pandemic. More than 150 state and local officials as well as community members attended the event and toured the new plant, which has already begun operations. The company expects to ramp up production, add more workers in 2023 and reach about 580 employees over four years.

Located on 48 acres off Interstate 35, the plant is part of Continental’s Autonomous Mobility business area and will manufacture radars, sensors and other products for advanced driver assistance systems (ADAS) that are the foundation of assisted and automated driving.

READ ALSO: Industrial Sector Embraces Reshoring Initiatives

With the new location, Continental is expanding its R&D and manufacturing capabilities in the U.S. The 320,000-square-foot Seguin plant operates under the name Vitesco Technology and employs more than 1,500 people in the company’s powertrain division.

Frank Petznick, member of the firm’s Automotive Board and head of Business Area Autonomous Mobility, said in a prepared statement that Continental has been researching and developing ADAS systems for more than 25 years. Petznick added that the new plant will play a critical role as the company grows its ADAS business in North America and will also support its goal of vision zero—zero traffic fatalities, injuries and crashes on roadways.

Local incentives

Continental’s new automotive manufacturing location in New Braunfels, Texas. Image courtesy of Continental

Continental has received about $5.5 million in incentives for the New Braunfels plant, according to local media reports. Comal County commissioners and New Braunfels City Council members approved separate incentive packages in 2019, including 10-year property tax rebates if certain employment and wage levels are met by the company. The New Braunfels Economic Development Corp., which is funded by a designated sales tax, provided money to the company for infrastructure, land acquisition and sewer improvements.

At Tuesday’s ceremony, Continental donated a total of $20,000 to the New Braunfels and Comal Independent school districts to support the Career and Technical Education Manufacturing programs offered by the districts. New Braunfels Mayor Rusty Brockman said in prepared remarks the city is excited to see Continental grow in the community and create well-paying jobs in engineering and manufacturing.

Booming industrial market

New Braunfels is located midway between San Antonio and Austin, and is part of the San Antonio industrial market. The overall vacancy in the market is 7.5 percent. In New Braunfels, the manufacturing vacancy is 2.3 percent and overall industrial vacancy, including warehouse and distribution, is 1.9 percent, according to a JLL report for the second quarter. The San Antonio industrial market has experienced 11 quarters of positive absorption as of the second quarter, and that streak was expected to continue through the third quarter due to a steady development pipeline, rent growth and users preparing to occupy, JLL also reported.

A CBRE report on emerging industrial markets released in the spring noted the Texas I-35 industrial corridor continues to grow at a rapid pace. The report stated New Braunfels is among the fastest-growing cities in the country, attracting many manufacturing and distribution users. With the influx of new residents and company relocations, robust industrial activity is expected to continue.

 Development, Featured, Industrial, News, San Antonio, South 

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Chevron Sells California HQ, Downsizes – What is a Ground Lease?

Bishop Ranch. Image courtesy of Sunset Development Co.

Sunset Development Co. has acquired Chevron Park, a 1.3 million-square-foot office campus in San Ramon, Calif., serving as the global headquarters of Chevron.

The second-largest U.S.-based oil company announced plans to sell the campus at 6001 Bollinger Canyon Road in June, as part of the multinational energy corporation’s plans to downsize its California footprint, focusing instead on its Houston presence.

Sunset Development Co. sold the 92-acre site, part of Bishop Ranch, in early 1981 to Chevron. With the completion of the current sale,  the family-owned company has now reacquired the two largest parcels of the 600-acre, mixed-use campus, which started taking shape in 1978.

READ ALSO: Top 5 Markets for Office Deliveries

Alex Mehran Jr., president & CEO of Sunset Development Co., did not reveal any specific plans for Chevron Park, but described the asset as “the gateway to Bishop Ranch” and a key part of the company’s plan to create a distinct California community. As of August, the Bay Area metro had 7.7 million square feet of office projects under construction, representing 3.9 percent of total stock.

In late 2013, a joint venture between Sunset Development Co. and MetLife Investment Management paid $250 million to AT&T—the parent of Pacific Bell—for the 143-acre parcel, home to BR 2600 totaling 1.8 million square feet of office space. Office transaction volume across the Bay Area metro reached nearly $3.2 billion through the end of August, based on CommercialEdge. These came to an average of $481 per square foot, well above the national average of $258 per square foot.

The new San Ramon space

Bishop Ranch – 2600

Designed by Skidmore, Owings & Merrill, the LEED Gold-certified property also known as Bishop Ranch – 2600 includes 100,000-square-foot floorplates, 130,570 square feet of retail space and 5,510 parking spaces at a ratio of 3.20 spaces per 1,000 square feet, CommercialEdge data shows.

The four-building office complex will be the new home to Chevron, as the company signed a 400,000-square-foot lease with the co-owners. Chevron selected NBBJ to customize the space within the 1983-built building, which was completely revamped in 2014, according to CommercialEdge. The new space at 2600 Camino Ramon will house up to 2,000 employees after interior construction wraps up in late 2023.

The tenant list includes BlackBerry, Sapphire and Trumark Homes, among others. BR 2600 also features coworking space through WeWork. As of August, the vacancy rate for the Bay area clocked in at 15.4 percent, 60 basis points higher than the national average.

 Featured, Investment, Leasing, Office, San Francisco, West, Chevron U.S.A. Inc., Sunset Development 

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Slowing Biotech Sector Should Turn for the Better – What is a Ground Lease?

Amber Schiada, Americas Head of Work Dynamics and Industry Research, JLL. Image courtesy of JLL

Despite a year that so far is a letdown from 2021’s record level of demand growth, the longer-term outlook for the life science industry—and for the real estate it occupies—remains positive,  according to JLL’s 2022 Life Sciences Research Outlook & Cluster Rankings, released Wednesday.

Noting that “Science doesn’t stop,” authors Amber Schiada, Americas Head of Work Dynamics and Industry Research, and Travis McCready, Head of Life Sciences, Americas Markets, tally the varied reasons for optimism, including a steadily increasing percentage of the U.S. population who are over 55, cash-rich Big Pharma companies and the ongoing flow of novel therapies.

Still, the shorter term does look bumpy.

READ ALSO: Build-to-Suit or Adaptive Reuse? Meeting Lab Space Demand

To oversimplify, beyond the underlying demographics of an aging population, venture capital drives the biotech sector, expansion of which drives demand for life science space. And venture capital going into biotech this year is nearly 40 percent below the peak from 2021. In fact, the authors pointed out, such investment in 2021 has fallen to barely above 2020 figures.

Travis McCready, Head of Life Sciences, Americas Markets, JLL. Image courtesy of JLL

Not only is this a direct effect on the market, but to conserve their current capital reserves, many biotech companies are retrenching, cutting headcounts and space, and often putting unneeded space onto the sublease market.

Given the correlation between demand for space and recent funding levels, the report predicts, “Until there is a rebound in venture funding, and IPOs and secondary offerings pick up, demand is likely to stay well below mid-2021 levels…. And so long as demand remains soft, there will be a re-emergence of Class A and B products in markets with large amounts of space delivered in recent years….”

Down, then back up

On the positive side of things, the outlook says, ‘the long-term potential of the sector remains materially unchanged since 2021.”

Although the supply landscape has shifted in the past 12 months, “demand remains above historical levels and space is still scarce with vacancy below 6 percent across the top clusters in aggregate,” JLL notes.

Further, life science innovation is happening more rapidly than ever, and crucially, “Three of the largest annual revenue jumps in biotech R&D in the past 20 years have occurred in the past five years,” according to the report.

As a result, Big Pharma companies have plenty of cash, leading JLL to anticipate that funding and acquisitions by these companies will close some of the gap created by private capital stepping back.

The outlook concludes that “we expect belt-tightening to continue into next year, but as the biotech indices may have hit a low point in early summer, so a long, slow recovery in valuations may already be underway.”

The outlook’s ranking of the top 15 life science cluster markets largely highlights the usual powerhouses, with metro Boston and the Bay Area at number one and number two.

What’s new is that JLL Research has introduced a new market ranking tool intended to guide occupiers with respect to market opportunities and provide investors with information on the momentum and resilience of each cluster. For that, see the full report.

 Featured, Health Care, Investment, National, News, JLL 

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Top 5 NYC Industrial Building Sales—August 2022 – What is a Ground Lease?

Source: PropertyShark, a Yardi Systems Inc. company537-545 Sackett St., Brooklyn

Sale Price: $30,366,000

The 41,050-square-foot factory in Gowanus will be replaced by Majestic, a mixed-use development. Developed by a partnership, which includes The Domain Cos., Vorea Group, Mega Development and the Urban Investment Group, an arm of Goldman Sachs Asset Management the project will include 255 units along with 18,000 square feet of commercial space. JLL Capital Markets arranged a $142 million construction loan originated by U.S. Bank for the 12-story building expected to come online in 2025.

2. 29-16 40th Ave., Queens

Sale Price: $19,000,000

A private investor sold the 9,449-square-foot property along with 29-24 40th Ave. totaling 19,400 square feet in Long Island City. Customers Bank facilitated the transaction with a $12 million acquisition loan. Completed in 1916 and 1931, the two-story buildings include a total of 4,497 square feet of office space as well as a combined 58,716 square feet of unused floor area ratio.

3. 1956 Atlantic Ave., Brooklyn

Sale Price: $17,900,000

Brookfield Properties acquired the 58,600-square-foot CubeSmart Self Storage in Crown Heights from a joint venture between Urban Storage Fund and Heitman Capital Management. Wells Fargo Bank provided an $11.4 million acquisition loan for the two-story facility built in 2018. PNC Bank provided the previous mortgage encumbering the property, a $9.6 million construction loan secured in 2016.

4. 16-30 Cody Ave., Queens

Sale Price: $13,225,000

Bow Tie Partners purchased the 39,550-square-foot property on 0.4 acres in Ridgewood from a private investor. Completed in 1931, the building includes 2,650 square feet of office space and is home to Vintage Wine Warehouse, which operates a subterranean wine storage facility at the location. The building last traded in early 2005, when the current seller paid $2 million for the two-story warehouse.

5. 33-34 Prince St., Queens

Sale Price: $12,500,000

Courtlandt Boot Jack Co. Inc. sold the 25,960-square-foot, owner-occupied building in Downtown Flushing. The buyer, a private investor, secured a $7.5 million acquisition loan originated by Cathay Bank for the single-story asset, which includes 2,160 square feet of office space. The property is easily accessible, less than half a mile from the subway line 7 at the northwest corner of Main St. and Roosevelt Ave. and within a mile of Whitestone Expressway.

 Industrial, New York, Northeast, Retail (NYC Spotlight), Brookfield Properties, CubeSmart, JLL Capital Markets 

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Avison Young to Lease 4-Building San Francisco Portfolio – What is a Ground Lease?

170 Grant Ave. Image courtesy of Avison Young

Grosvenor has appointed Avison Young to oversee leasing for four boutique office properties in downtown San Francisco. Spread across Union Square, the portfolio has a total of 133,000 square feet of office and retail space, with individual buildings ranging between 24,785 and 44,442 square feet.

The leasing team, comprising Principals Kelly Glass and Sean McCallum, Associate William O’Daly and Senior Marketing Associate Melinda Ta, is aiming to attract small- to medium-size companies from the finance, insurance, engineering, marketing, venture capital or architecture sectors.

The largest asset is a 40,442-square-foot mid-rise, situated at 240 Stockton St. Renovated in 2014, the LEED Gold-certified property also includes 11,000 square feet of retail. Grosvenor picked up the building in 2016, in a $80 million deal, according to CommercialEdge.

Next in size is a 37,000-square-foot building that is also LEED Gold-certified. Built in 1908 and renovated in 2012, the property at 251 Post St. features 2,000 square feet of showroom space and 6,000 square feet of retail, CommercialEdge shows.

The last two buildings, totaling nearly 56,000 square feet, are steps away from each other at 170 and 214 Grant Ave.

Office leasing in San Francisco

The four properties are in proximity of the San Francisco Museum of Modern Art and Interstate 80, while San Francisco International Airport is within 14 miles. Due to its positioning, Grosvenor’s portfolio is likely to be among the first properties to rebound as part of downtown San Francisco’s recovery, aligning with the return-to-the office movement, said Sean McCallum, in prepared statements.

According to a recent CommercialEdge report, San Francisco’s office vacancy climbed only 10 basis points month-over-month, to reach 18.1 percent in August. However, on a year-over-year basis, the metro’s vacancy rate inflated by 400 basis points.

 Leasing, News, Office, San Francisco, West, Avison Young, Grosvenor, LEED 

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Phoenix Investors’ Frank Crivello on The Great Decoupling – What is a Ground Lease?

Beginning slowly in the 1970s and picking up pace in the 1990s, businesses from numerous countries started outsourcing manufacturing to China to benefit from a ready and affordable workforce. As this trend picked up speed, the country eventually gained the nickname “The World’s Factory.” Consequently, for most of the late 20th and early 21st centuries, you could find “Made in China” stamped on virtually everything from consumer electronics to furniture to athletic wear.

Things change, however. For various reasons, China has begun to lose its grip on the global manufacturing community over the past few years. This shift away from China has directly impacted the U.S. industrial real estate market.

What is The Great Decoupling?

Recent events have not been kind to the Chinese manufacturing sector. First, a U.S.-China trade war made sourcing from China prohibitively expensive for U.S. businesses across a variety of industries due to a substantial list of tariffs on Chinese goods and raw materials. Then, the COVID-19 pandemic shut down China’s manufacturing sector and ports and continued to do so off and on for almost two years. As a result, the cost benefits of manufacturing in China began to dwindle for U.S. businesses, so “the Great Decoupling” began.

The Great Decoupling refers to an exodus of production from China as businesses seek to improve supply chain resilience. These circumstances have been beneficial for a variety of other countries in Southeast Asia, including India, Vietnam, and Malaysia, among others.

But what does The Great Decoupling mean for the United States? As U.S. businesses decouple their supply chains from China, are they bringing those assets home?

The Great Decoupling and U.S. Industrial Real Estate

Business media and U.S. manufacturing stakeholders periodically claim that a manufacturing resurgence is on the horizon every year or two for the better part of the last 15 years. However, while some businesses have certainly reshored their production to the United States before recent troubles, the numbers weren’t significant enough to demonstrate any real movement toward rebuilding the U.S. manufacturing sector.

However, things appear to be looking up for the U.S. reshoring movement. In 2021, interest in reshoring was clearly on its way up, given that 92 percent of executives expressed positive sentiments toward reshoring in a Kearney report, and 83 percent of North American manufacturers reported they were likely or extremely likely to reshore production in a Thomasnet survey. Now, those sentiments appear to be coming to fruition in 2022. For example:

The Reshoring Initiative projects that 350,000 manufacturing jobs will be reshored in 2022, up from 260,000 in 2021.
The Inflation Reduction Act has spurred notable action in clean manufacturing sectors such as solar, electric vehicles, clean energy, batteries, electronics, semiconductors, and more.
Construction of new manufacturing facilities in the U.S. has risen 116 percent year-over-year, according to Bloomberg and Dodge Construction Network.

In commercial real estate, demand for viable manufacturing properties has increasingly contributed to industrial real estate demand this year. This demand can probably be attributed to a mixture of domestic expansion and reshoring efforts as companies attempt to stabilize their supply chains.

While the impact of the pandemic itself on global supply chains has begun to wane—except in China, where the country’s zero-tolerance policy for COVID-19 means that closures still happen—most of the primary drivers for reshoring remain. Port delays, container shortages, severe weather events, and transportation capacity issues will continue for the foreseeable future. As such, interest in relocating production to the U.S. will also continue to rise.

The real estate sector would do well to recognize the potential in this trend. Developers will want to ensure new factories are ready to handle heavy automation, smart technologies, and sustainable solutions, which will all be key to attracting the next generation of manufacturing tenants.

About Phoenix Investors

Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk-adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost-efficient solutions, and a reputation for success.

 Industrial, Phoenix Investors 

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Commercial Real Estate’s Net Zero Mission – What is a Ground Lease?

Editorial Director Suzann D. Silverman

With scientific warnings intensifying about the fast-approaching critical juncture for global climate crisis, it’s more important than ever to go green. The problem is, we’re still struggling to define what’s meaningful—even as the bar keeps moving.

We’ve had these discussions before. Some years ago, the U.S. Green Building Council tightened its qualifications for its various LEED certification levels to dissuade focus on low-hanging fruit and ensure valuable environmental contributions were being made. Today, similar attention needs to be paid to the relative value of net zero achievements.

A growing number of real estate companies are making net zero a goal. And that’s definitely laudable. But net zero is a broad term, and the extent to which it’s applied and the results achieved vary widely. Some commercial property owners and developers are focused on offsetting their carbon contributions by purchasing energy credits. Others target reduction in operational emissions. And still others—a much smaller group—are revising their selection of building materials and working with tenants to reduce their emissions. Those last efforts represent a greater challenge, and in the case of building materials, will necessarily take longer to achieve. However, they are significantly more meaningful contributions to global carbon reduction.

In fact, according to a recent Wall Street Journal report, the purchase of energy credits to offset carbon production, today’s low-hanging fruit, will soon lose its value. There is still a surplus of carbon offsets. But “surplus” doesn’t mean we’re ahead, as those credits don’t actually offset the entire carbon footprint—not by a long shot. Meanwhile, demand for the credits keeps growing, and at such a pace that the funding gained from their sale can’t be applied quickly or effectively enough to neutralize the carbon being created. In short, the value of that program is rapidly diminishing, putting greater onus on corporations to reduce their carbon emissions.

If that’s not enough to inspire you, new regulatory actions are demanding greater transparency, accountability and actual improvements. At the state level, ever environmentally conscious California signed AB 2446 into law in mid-September. The law mandates creation of a means to measure carbon intensity of building materials by mid-2025 and sets emissions-reduction goals for 2030 and 2035.

At the federal level, the Securities and Exchange Commission has proposed a new rule requiring more detailed disclosure of climate change risks and efforts among public companies, as IvyLee Rosario discusses in “Net Zero in CRE Is Easier Said Than Done.” That would at least allow investors to gain a clearer understanding of the environmental actions being taken. This, in turn, may put more pressure on private companies to similarly report their activities to investors.

There’s no question the stakes are rising. With the ability to make a difference literally from the ground up, we as an industry can work together to achieve meaningful change.

 Digital Edition, Editor’s Note 

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Foundry Commercial To Market North Carolina Office Campus – What is a Ground Lease?

Palladian I

Innovatus Capital Partners has appointed Foundry Commercial with the leasing of Palladian Corporate Center in Durham, N.C. Managed by American Real Estate Partners, the two-building, Class A office property totals 190,556 square feet.

Foundry Principal John Kelly and Vice President Patrick Blackley will be in charge of marketing the asset. The 90,010-square-foot Palladian I is located at 220 Leigh Farm Road and is fully occupied; its twin building, the 100,546-square-foot Palladian II, at 240 Leigh Farm Road, is 74 percent leased.

Acquired by the current ownership in 2018 for $55.6 million, Palladian Corporate Center is at the intersection of Highway 54 and Interstate 40, 4.5 miles from the University of North Carolina at Chapel Hill, 7.8 miles from Duke University and within 10 miles of downtown Durham.

Up-to-date amenities at Palladian Corporate Center

Constructed in 2005 and 2007, respectively, the four-story buildings include amenities such as showers and lockers, on-site running trails and controlled access. Each property offers 402 parking spots and 26,000-square-foot floorplates, CommercialEdge shows.

The buildings feature HVAC coil disinfecting, hand sanitizing stations, electrostatic cleaning and indoor air quality tests. New amenities will be added in 2023, and will include a conference center, lounge area and fitness center.

The Triangle region’s office sector remains strong and with the return-to-office movement still ongoing, Kelly expects Palladian II’s availability to be short-lived, he said in prepared remarks. The booming life science market has a large share in the current fundamentals of the office sector nationwide. Earlier this year, bio-systems company TARGAN committed to the first life science-focused facility in the Midtown Raleigh, N.C. area. Dubbed Midtown BioCenter, the 100,000-square-foot property is slated for completion next year.

 Leasing, News, Office, Raleigh-Durham, South, American Real Estate Partners, Foundry Commercial, Innovatus Capital Partners 

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NexCore Group Completes Arizona MOB – What is a Ground Lease?

Northwest Medical Center Houghton. Image courtesy of NexCore Group

NexCore Group has finished construction on a 45,250-square-foot medical office building in Tucson, Ariz., part of the Northwest Medical Center Houghton hospital campus. With Wold | HFR Design serving as architect and Haydon Building Corp. as general contractor, the project broke ground in December 2020 and topped out in June 2022, when the 52-bed Houghton hospital officially opened, according to BizTucson.

The two-story building came online on a 5-acre site. The facility hosts primary care, cardiology, gastroenterology, dermatology, general surgery, obstetrics and gynecology, orthopedic services and physical therapy, pulmonary and rheumatology. Nathan Golik, executive vice president at NexCore, stated in prepared remarks that the size of the building was increased by approximately 20 percent in order to accommodate private physicians and expand the available services on campus.

Located at 2300 S. Houghton Road, the property is 13 miles from downtown Tucson, with Interstate 10 located just 10 miles from the hospital campus. The facility is 6 miles from St. Joseph’s Hospital and 8.8 miles from Tucson Medical Center.

Back in 2020, NexCore developed another facility within the Northwest Medical Center, a 61,000-square-foot building which was to function as a hospital and skilled nursing facility. Earlier this year, the company partnered with CHRISTUS Southeast Texas Health System to develop a medical campus in Orange, Texas. The 55,000-square-foot medical office building is slated for completion in 2023.

 Development, Health Care, News, West, Medical Office Building, NexCore Group 

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BARDAS, Bain Capital Plan $600M Studio Campus in Hollywood – What is a Ground Lease?

Echelon Television Center. Image courtesy of BARDAS Investment Group and Bain Capital Real Estate

Coming soon to Hollywood, a $600 million redevelopment of the former Television Center’s aging facilities into a modern 620,000-square-foot urban studio campus featuring creative office space, a studio lot and four large soundstages. This production is brought to you by BARDAS Investment Group and Bain Capital Real Estate.

Located in the heart of Hollywood, the 6.4-acre site at 6311 Romaine St. is one of the largest development sites in the Los Angeles area. Spanning two city blocks, it is bordered by Santa Monica Boulevard to the north, Cahuenga Boulevard to the east, Willoughby Avenue to the south and Cole Avenue to the west. The property used to be the headquarters for Technicolor and studio lot for Metro Pictures Corp. The existing facility, built between 1930 and 1966, currently offers about 183,000 square feet of creative office and studio space.

READ ALSO: Creative Economy Drives LA Office Development

Bain and BARDAS, which formed a joint venture in 2019 to pursue opportunities to acquire, renovate, develop and operate creative office and other production space particularly in the Los Angeles area, are planning a state-of-the-art production facility that will be combined with the preservation of many of the distinctive buildings constructed during Technicolor’s heyday. The new studio campus will be rebranded as Echelon Television Center, according to David Simon, BARDAS founder & managing principal. Construction is expected to start in 2024.

Aerial view of Echelon Television Center. Image courtesy of BARDAS Investment Group and Bain Capital Real Estate

Simon said in prepared remarks the project represents the company’s continued focus on redeveloping infill product for the entertainment and media industries in the content capital of the world. He said revitalizing the old home of Technicolor and Metro Pictures represents a great opportunity to keep Hollywood in Hollywood.

The partners acquired the site in March. They plan to keep the original art-deco façade on the northern block and use it to enclose a studio lot that will be bookended by a new mid-rise creative office building with ample private outdoor terraces with views of the Hollywood Hills. The new construction will replace a parking lot and two dilapidated buildings on Santa Monica Boulevard. On the southern block, a vacant parking lot will become the site of four large soundstages with a basecamp. A six-story creative office building will also be built at that site along with production support space, private rooftop office bungalows and decks.

Growing niche

The property will be managed under the joint venture’s Echelon brand, which provides hospitality programming and services including on-site experiences, wellness platforms, food and beverage branded operators and on-site management catering to the needs of the media and entertainment community. To date, the joint venture has invested in and has a pipeline of existing and new development projects encompassing more than 1.5 million square feet.

Last year, the joint venture announced plans for a $450 million urban studio campus at a 5-acre site located at 5601 Santa Monica Blvd. in Hollywood. That plan, called Echelon Studios, will have four 19,000-square-foot sound stages, a 15,000-square-foot flex stage and a 90,000-square-foot creative village of high-end bungalows. The project, expected to begin in 2023, will also have 350,000 square feet of creative office space spread across two six-story buildings.

Joe Marconi, Bain Capital Real Estate managing director, said in a prepared statement BARDAS and Bain have strong conviction in the demand drivers that are fueling continued growth of the media and entertainment industry. He said they were excited to honor the past of the Television Center site while delivering a project curated for today’s content creators in the heart of Hollywood.

They are not the only investment groups seeing movie and television studios as a viable growth industry due to the rise of streaming services and need for more media and online entertainment content. California has seen massive investment in the sector within the last decade, including a surge of new studio development projects.

Hudson Pacific Properties is among the developers expanding their soundstage footprint in the Los Angeles area. The company runs Sunset Studios, which currently has about 3.5 million square feet of soundstages and office space. Sunset Studios is jointly owned by Hudson Pacific and funds managed by Blackstone and is building Sunset Glenoaks in Sun Valley, which is estimated to cost about $190 million and will have seven flexible stages and 120,000 square feet of support space.

Hackman Capital has made about $3.8 billion in studio investments in the past three years and has 90 stages under construction. Other projects have been announced by Sylmar Studios, East End Studios, Quixote Studios and Shadowbox Studios.

 Development, Featured, Los Angeles, Mixed Use, News, Office, West, Bain Capital Real Estate, Blackstone, Hackman Capital Partners, Hudson Pacific Properties 

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