2010 April | CPE Blog

Will Tenant Demand Spur LEED EB Building Certification?

Apr 282010

Sustainability, much like global warming to the scientist, is a word that has now become part of every Property Manager’s vocabulary. Having witnessed this evolution first hand, one must applaud the U.S. Green Building Counsel (USGBC) in how well they have been able to sell the greening of commercial office buildings. Survey any property manager and ask if they believe that they must be sustainable to be successful in their career, they will overwhelmingly all answer “yes!” because they must. Why is this?

America is a capitalistic society with property value predicated on supply and demand. With this in mind, what exactly is the supply of LEED EB certified buildings? And how many square feet of commercial space in Manhattan is LEED EB Certified? By last count, only twelve (12) commercial properties in all of Manhattan were LEED EB Certified which total a little under 13 Million square feet. In comparison, there is somewhere in the neighborhood of 400 Million square feet of office space in Manhattan.

Therefore, the percentage of LEED EB certified space is about 3%. Has this certification increased their property value? Are tenants demanding that they occupy space within a LEED Certified Building? By my count, I have counted almost 100 commercial office buildings registered for LEED EB. These property owners/managers, myself included, are making a bet that prospective tenants will eventually request from their brokers, much like what is starting to happen on the west coast, that they reside within a LEED EB certified building. Is this assumption correct or will New York City buck the trend and supply far outweigh demand? What do you think?

Jack Terranova, PE, LEED AP, RPA
Director of Operations
Cassidy Turley New York
212-318-9734

“CMBS Is Back!”

Economy, Finance, Uncategorized 1 Response »

Apr 232010

This headline is being broadcast throughout the real estate industry and is stirring up optimism that more liquidity is returning to the marketplace.

The new loans are more conservative and have some nuances reflecting the decrease in risk tolerance of both the originators and the purchasers of the paper. The originator doesn’t want to be stuck with the paper and the purchaser wants to make sure the value or rating of the paper stays intact.

To identify the major differences in the new CMBS loans verses those offered during the credit boom, I’ve summarized a brief comparison below:

Present/Former

Amortization: Required/Interest Only Common

Loan to Value: 65-70%/80%

DCR: 1.30X/1.20X

Debt Yield: 12%/None

Rate: 6.25%/5%-6%

Lock Box: Required/Negotiable

Warm Body: Required/Negotiable

Pool Size:$500MM/$2BB+

Debt Yield – The term debt yield means dividing net cash flow (the cash flow after reserves for tenant improvements, leasing commissions and reserves) by 12% and you arrive at your maximum loan amount.

Lock Box – if the debt coverage ratio drops below 1.10X then the lender collects your rents directly.

Reviewing the contrasts between the terms offered during the former and present periods it’s logical to see the peak versus trough correlation. Logic indicates as securitizations increase and competition arises for the new CMBS paper that gradually the present platform will evolve to look closer to the former. The question that remains is when?

As more players have entered the market, we have seen firms start hiring again as well as a break in pricing. From early 2010 to today we’ve seen CMBS rates drop from 7% to 6.25%. That’s good news for the capital markets and reflects a trend that demand exists for the paper.

If you’re contemplating a CMBS loan, go in with realistic expectations including the “present” terms outlined above, expecting the lender to mark your rents market as well as applying a market vacancy to your project. Additionally, like portfolio lenders, CMBS lenders will be less aggressive in markets that have a greater percentage of defaulting CMBS loans.

James DuMars
Managing Director
NorthMarq Capital Phoenix Office

2929 East Camelback Road, Suite 226
Phoenix, AZ 85016

(602) 508-2206 Direct
(602) 714-4202 Cell
(602) 954-6168 Fax

jdumars@northmarq.com
www.northmarq.com

Seattle Spring

Global Green Design, Uncategorized 1 Response »

Apr 072010

It is a cold, windy and rainy day in Seattle. In looking for signs of spring, they are evident – there are tulips, sunbreaks, and cherry blossoms, and in being in our South Lake Union neighborhood, there is something bigger happening here – something that is about to transform this part of the city.

Amazon in moving in to our neighborhood – all 6,000+ of them. There are 11 buildings in various stages of completion, construction, and planning, developed by Vulcan Real Estate and Schnitzer West. Today the first 3-building block is complete. It is the new heart, the epicenter of Amazon – and the most visible mark of that is now on the building. Amazon has started the beginning stage of their move in. The lounge furniture is in place, the grand fireplace is lit (a perfect day for that), the tables and lighting are in the cafe, and the doors are on the ceiling (Amazon likes their doors).

Amazon headquarters - South Lake Union, Seattle - NBBJ

In walking the neighborhood today, there are cranes, lifts, hardhats, orange vests - a bustling energy is everywhere. The larger vision here is for a newly enhanced urban environment between the downtown core and Lake Union. A desirable place for innovative businesses, urban professionals to live and to work, new restaurants, and retail – snowboards, home design, the REI flagship, and much yet to be realized. The streetcar running between downtown and Lake Union is about to increase it’s ridership.

A few years back when we designed our own headquarters along with the mixed use block at Alley 24 for Vulcan Development, this neighborhood was on the quiet fringe to the city. Some of the other developments that have been sitting vacant have recently announced new lease tenants. Still, there are many empty or under-utilized buildings – old warehouses, printing plants, manufacturing facilities, and even some single family homes in need of significant care or re-development.

Central plaza, Amazon headquarters - South Lake Union, Seattle - NBBJ

This is a great time to bring new energy into the city, and for Amazon to become part of the city again, with a great impact. We are in for a powerful transformation – a new epicenter in our rich and diverse city.

It’s definitely the first day of spring in our neighborhood.

Confidence Key to Economic Recovery

Economy No Responses »

Apr 072010

Downtown Miami Population Growth: Good News for Commercial Real Estate Market

Miami No Responses »

Apr 012010

Much has been reported on Downtown Miami’s recent spike in residential occupancy, with nearly three out of four of the condo units built since 2003 now filled.

The impact this population growth is having on Downtown’s real estate economy is already being felt: the area’s retail occupancy of 5% is among the nation’s lowest as business owners flood the area to serve and employ new residents.

The next question on the minds of many observers is what impact residential occupancy will have on Downtown’s office market, where nearly 1.2 million SF of new class-A construction is slated to come online this year, beginning with 1450 Brickell, which delivered in February.

To this point, several factors signal that Downtown Miami’s growing residential occupancy will accelerate absorption of its new office product:

Downtown Miami’s condo boom yielded something for everyone, from ‘mansions in the sky’ overlooking Biscayne Bay, to cool, affordable condos for young professionals. This means office users – from executives at the top looking to purchase, to professionals straight out of college looking to rent – can call Downtown Miami home.
While the vast majority of Downtown occupants are full-timers, the City’s condo oversupply is appealing to foreign buyers in the hunt for a long-term investment. As a result, executives at multinational companies looking to establish a South Florida presence have Downtown Miami in their sights.
Now that a healthy base of residents is in place, corporate users are placing greater emphasis on Downtown’s quality of life when evaluating their office location. Downtown is home to Miami’s top cultural and entertainment destinations, a flurry of new restaurants, pedestrian-friendly streets, new parks and green spaces, and an efficient public transit system that helps make for an easy commute, giving the area a leg up on popular submarkets like Coral Gables.

As more and more Downtown Miami units fill up – occupancy absorption is expected within the next 25 months – we’ll be keeping an eye on office market stats. My guess is that steady population growth, coupled with a gradually-improving economy, will have a net-positive effect on the office market. The million-dollar question is what the extent of that impact will be.

What do you think? Have you experienced a similar market dynamic in your hometown? Sound off in the comments section.

Danet Linares is Executive Vice President of Blanca Commercial Real Estate.