Industrial & Investment Real Estate Brokerage
Market Trend: Select Top Five Inland Empire Industrial Leases Signed in Q2 2014
The select top industrial lease signed during the second quarter of 2014 in the Inland Empire market was at Empire Gateway Bldg 2 in the West San Bernardino submarket. Yokahama Tire Corporation leased 658,756 square feet there. Colliers International represented the landlord.
Restoration Hardware leased 625,000 square feet at 5085-5125 Schaefer Ave. in the West San Bernardino submarket. Lee & Associates represented the tenant and the landlord in the deal.
Federal Mogul signed a 522,772-square-foot lease at 22750 Cactus Ave. in the Riverside submarket. Colliers International represented the landlord, while CBRE represented the tenant.
Ownes & Minor leased 520,161 square feet at 5125 Ontario Mills Pky in the Airport Area submarket. Lee & Associates represented the landlord.
United Furniture Industries renewed its 505,192-square-foot lease at Distribution Centre 1 in the North San Bernardino submarket. CBRE represented the landlord, while The Bradco Companies represented the tenant.
In the first quarter, Euro-Pro Operating leased 779,052 square feet at Empire Gateway Bldg 1 in the West San Bernardino submarket. Colliers International represented the landlord.
This trend is compared to the U.S. National Industrial select largest lease signings occurring in Q2 2014, which include the 1.7 million-square-foot lease signed by Michelin at RidgePort Logistics Center in the Chicago market, RosKam Baking Co.’s lease of 885,781 square feet in the Western Michigan market, United Furniture Industries’ 800,000-square-foot lease in the Greensboro / Winston-Salem market, CEVA Logistics’ 648,758-square-foot renewal in the Memphis market, and the 620,000-square-foot lease by 99 Cents Only in the Los Angeles market. In the first quarter, Exel leased 947,715 square feet in the Charlotte market.
The information in this news report is based on CoStar’s Second Quarter 2014 Market Report, a 40+ page comprehensive research report available to CoStar subscribers. To learn more about quarterly research reports and other benefits available to CoStar subscribers, please call 888-226-7404.
CoStar’s Repeat-Sale Index Tracks Rising Transaction Volume, Improving Investment Conditions
September 17, 2014
Plentiful capital available for investment and improving market conditions continued to provide a boost to property pricing this past July, according to the latest CoStar Commercial Repeat Sale Index (CCRSI).
The CCRSI's equal-weighted U.S. Composite Index, which is more heavily influenced by the more numerous smaller, lower value property sales, increased by a strong 1.5% in July 2014 and 11.9% for the 12 months ending in July 2014, rising to within 20% of its prerecession peak reached in 2007.
Meanwhile, price gains have moderated in the value-weighted U.S. Composite Index, which is more heavily influenced by higher-value trades. This component of the Index began to recover earlier and is nearly back to its peak levels reached in 2007. The value-weighted Composite Index advanced 0.8% in July 2014, and 8.0% for the 12 months ending in July 2014.
Pricing for property in the General Commercial segment has been increasing steadily over the past 15 months, and gained momentum in recent months due to improving market fundamentals and increased capital flows across the commercial real estate size and quality spectrum. The General Commercial Index is up more than 27% from its trough in 2011, and is 18.5% below its prerecession peak. The Investment Grade segment has increased 40.3% from its trough in the beginning of 2010 and is 15.4% below its prior peak.
Overall property sales volume was up in July as healthy market fundamentals, low interest rates and increasing allocations to commercial real estate by major investors provide an attractive environment for property investors.
Consistent with recent pricing gains, sales volume increased evenly across the high and low end of the market as investors broaden their search for yield. Trailing 12-month sales volume rose 26% in the Investment Grade Index and 21% in the General Commercial Index through July 2014.
Sales of distressed property continued to decline as a percentage of total sales, dropping from a peak of over 35% in 2011 to 11% through the first seven months of 2014.
More information about CoStar's CRE price indices can be found here.
Surge in CMBS Volume Prompts New Ventures, Raises Concerns
Cushman & Wakefield, PREI and Macquarie All Expanding CMBS Practices Ahead of Coming Wave of Debt Maturities
September 17, 2014
The resurgent CMBS market is enjoying its strongest month in seven years with about $15 billion of new mortgage-backed offerings being sold. The return of the CRE financing conduit has not gone unnoticed by investors, and firms such as Cushman & Wakefield and Principal Real Estate Investors expanding their CMBS services.
When September ends, CMBS issuance is projected to be up 20% year-over-year, according to Morgan Stanley Research, with a total of 21 separate CMBS deals totaling over $15 billion expected to price this month. This is by far the most active month since the end of the global financial crisis and compares to pre-crisis volumes.
Should all these deals price as expected, issuance volumes through the first three quarters of 2014 would exceed $67 billion, Morgan Stanley notes.
At the same time, the rebound in origination volumes has prompted some concerns over loosening underwriting standards among CMBS originators to win market share, coupled with declining insurance companies demand for loans as rates fell.
While acknowledging that underwriting standards are loosening, analysts at the investment bank noted they still appear to be more conservative than those underwritten in 2007, and also noted the expansion beyond core primary markets.
"The percent of CMBS loans secured by
properties outside the top 25 MSAs is increasing to nearly 50% (compared to less than 35% prior to the global financial crisis)," Morgan Stanley researchers noted in their Global Securitized Products Outlook: Fall 2014, held this week. "In 2013, CMBS market share was 24% overall, consisting of 20% for primary markets, 25% for secondary markets and 35% for tertiary markets. For issuance to increase to above $100 billion in the coming years, CMBS originators would need to have approximately 30% market share driven primarily by secondary and tertiary markets."
The greater issuance volume is coming at a key time given the forthcoming wall of CRE debt maturities.
The CMBS market has only surpassed the $100 billion annual issuance level three times: in 2005, 2006 and 2007. Because of the record volume in those years, an unusually heavy supply of debt maturities will hit in the coming three years, which may lead to a shortfall if demand among investors proves insufficient to handle the volume, according to research done by Peter Linneman, NAI Global chief economist.
Even if issuance hits $120 billion in 2015, 2016 and 2017, there will be a shortfall of roughly $240 billion in those three years, according to Linneman.
Signaling a strong vote of confidence in the resurgence of CMBS activity, Cushman & Wakefield has added a capital markets and commercial real estate veteran to its leadership roster to expand its capital markets platform. Bob Kline of RW Kline Cos. joined the firm this week as senior managing director of the Equity, Debt and Structured Finance Group.
Kline was previously CEO of his own CMBS debt restructuring firm and the leader of the equity/debt advisory team at RW Kline Capital LLC.
At Cushman & Wakefield, Kline will spearhead a specialized national CMBS advisory practice focused on CMBS debt maturities, assumptions, restructurings and rescue capital, creating what he said will be the largest CMBS debt restructuring practice in North America.
As CEO of RW Kline Cos., Kline facilitated more than 600 note sales, acquisitions and more than $8.7 billion in restructurings.
Also in the past week, Principal Real Estate Investors, the real estate group of Principal Global Investors, and Macquarie Group, announced they are creating a lending platform focused on originating and securitizing commercial mortgages called Principal Commercial Capital.
Principal is already actively involved in CMBS purchasing and commercial mortgage servicing. The major investor also has a lengthy track record as a CMBS loan originator and seller. The firm has contributed almost 2,000 loans totaling more than $16 billion to more than 50 securitizations.
The new venture will enable Principal Real Estate Investors to offer a wider menu of options for borrowers.
Principal Real Estate Investors and Macquarie will jointly manage the nationwide lending platform. Principal will source, underwrite, close and service loans. Macquarie will provide funding and capital markets expertise.
Macquarie has recently hired a team of CMBS veterans, led by Timothy Gallagher, to expand its presence in the U.S. commercial real estate market.
"There will be a substantial volume of commercial mortgage loans maturing over the next few years. That provides Macquarie with a sound opportunity to establish a CMBS debt platform in the U.S.," Gallagher said.

Canyon Hills Marketplace in Lake Elsinore Sells for $33.5M
               

      

Canyon     Hills is fully occupied by tenants like Stater Bros., CVS, Jack in the Box,     Wells Fargo, Carl’s Jr. and Panda Express. 

   

LAKE   ELSINORE, CALIF. — HELF Investments has acquired   Canyon Hills Marketplace, a 108,358-square-foot neighborhood shopping center   in Lake Elsinore, for $33.5 million. The center is located at 25381-25341 and   29996-29997 Canyon Hills Road.

Canyon   Hills is fully occupied by tenants like Stater Bros., CVS, Jack in the Box,   Wells Fargo, Carl’s Jr. and Panda Express. The center opened in two phases in   2006 and 2009.

"This   shopping center is an attractive asset not only because of the high-quality,   detailed architecture but because it is the focal point of the   community," says Kobzi. "It is located adjacent to the highly   desirable gated community of Canyon Lake and within the trade area of the   communities of Audie Murphy Ranch and Tuscany Hills."

Industrial Developers Chase Core,Find Value-Add

The tight industrial market is causing headaches for industrial developers. (Any time you have to factor earthquakes into your plans, you could use an aspirin.) Last week at our Bisnow Industrial Summit, our expert panel of owners and developers shared their individual coping strategies.

Prologis’ Southwest president Kim Snyder talked about the ways that e-commerce is affecting the design of industrial buildings. Guidelines include lots of parking for large numbers of pick and pack employees; two or three trailer parking spaces per truck door; 40-foot clear heights, and multiple mezz levels. Designing those features into a spec building to attract e-commerce users can get pricey, but if you don’t, you’ll miss out.

With core buyers moving into value-add, Panattoni Development partner Mark Payne says the company is out of the value-add space—ground-up development seems to be its niche right now. As for competition from owner-users, Mark says the sites he’s chasing are either too complex for them to figure out, or an owner-user may get a site under contract, then decide it doesn’t want to deal with the hair on it.

Dedeaux Properties Brett Dedeaux says the developer is doing more ground-up to achieve returns. The company just sold a 90k SF building in Vernon, which hasn’t been its MO, because lease rates haven’t moved in some of the infill areas the way he would like. Comparing the sale price to what he could get on a lease rate, it would take 15 years to match the same returns.

Oltmans Construction VP Gerald Singh says 13M SF of tilt-up product has been completed in the Inland Empire through June, and another 13M SF is under construction. Looking at what’s being entitled and what’s planned, he sees 60M to 70M SF on the books right now for the coming years (provided the economy cooperates). Construction prices went up 4% to 5% last year, and a similar increase is trending for next year.

Noting that we’re in earthquake country, Saunders Commercial Seismic Retrofit prez Steven Saunders says any building built before 1997 is a candidate for a seismic retrofit. The 2003 San Simeon earthquake set a precedent for risk—two women were killed when a building’s parapet fell, and the owner, who knew the building was deficient, was hit with a nearly $5M judgment.

Our moderator, CBRE senior managing director Kurt Strasmann, says that of the 51 industrial markets the firm tracks nationally, LA’s by far is the biggest and best. LA’s got the lowest vacancy rate in the nation, OC is second lowest, and the IE is fourth lowest.

Kim says Prologis is going value-add because he can’t find core—he hasn’t seen a brand new, clean, rectilinear box available at a good cap rate in three years. Mark says Steven’s seismic-retrofitting process gives value-add properties a Good Housekeeping seal of approval for a pension fund buyer. Brett says one way that Dedeaux Properties was able to do a value-add deal this year was by buying the LA Food Center in the firm’s refrigerated niche. Gerald says costly issues that buyers often overlook include ADA compliance and fire sprinkler density; investors also should ask the local fire marshal about the allowable commodities that can be stored and to what height.

THE WANDA GROUP BUYS WILSHIRE BOULEVARD SPACE IN BEVERLY HILLS

  BEVERLY HILLS, CALIF. — The Wanda Group has acquired an eight-acre site in Beverly Hills for an undisclosed sum. The space is located at 9900 Wilshire Blvd. The site is adjacent to the Beverly Hilton Hotel, which will soon be a Waldorf Astoria Hotel. The space previously housed a Robinsons-May store. The group plans to develop this space into a luxury mixed-use project with residential condominiums. The groundbreaking is planned for next year. The condos will feature 360-degree views that span over the Los Angeles Country Club golf course. They will be designed by architect Richard Meier. The seller, Joint Treasure International, was represented by CBRE’s Laurie Lustig-Bower and Rebecca Shum, along with Robert Stamm and Frank Marriott of Savills Studley. Joint Treasure invests on behalf of a select investor base into prime real estate in global gateway cities.  - See more at: http://www.rebusinessonline.com/main.cfm?id=17&date=20140916&region=Western#sthash.1bxzR6cw.dpuf

Just Leased:  Noah Samarin represented both the Sublessor and Master Lessor in the sublease of the 13,741/SF freestanding industrial warehouse in Moreno Valley, CA.  Terms are not disclosed.

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August Shipping Up at Port of Los Angeles, Down in Long Beach

By Andrew Edwards           Tuesday, September 16, 2014    

Cargo volumes increased last month at the Port of Los Angeles, although the neighboring Port of Long Beach saw a decline in activity after what officials there characterized as mismatch between last year’s peak shipping season and this year’s.

In all, 758,000 shipping containers moved through the Port of Los Angeles in August, a 7 percent increase over the same month last year. Imports were up 8 percent while exports rose 6 percent. Through the first eight months of the year, cargo volumes in Los Angeles have risen nearly 8 percent to more than 5.5 million containers moving in and out of the port.

Port of Long Beach officials, however, reported on Monday that total shipping activity in August decreased 9 percent year-over-year to roughly 573,000 containers. Imports to Long Beach were down 8 percent, while exports fell by nearly 18 percent.

Officials there said some shippers moved goods through the port earlier than they did last year to avoid possible delays related to ongoing port labor negotiations, resulting in a slower August.

The contract between West Coast port operators and the International Longshore and Warehouse Union expired on July 1 and labor talks between the two sides are ongoing. Negotiators reached a preliminary deal on health benefits in late August.

Through August, shipping activity at Port of Long Beach is up 1 percent to more than 4.5 million containers.

Newcastle Buys 13 Acres at Meridian Business Park in Riverside

Newcastle   built a 600,000-square-foot, Class A distribution building at Meridian   Business Park in 2013.

RIVERSIDE, CALIF. — Newcastle Partners has acquired 13 acres of land at Meridian Business Park, a 1,290-acre, master-planned commerce center in Riverside, for an undisclosed sum.

Newcastle plans to develop a new speculative industrial distribution facility totaling 260,000 square feet at the site. Construction is expected to begin later this year, with completion slated for next fall.

Newcastle’s development activity within the park now totals 1.37 million square feet on 66 acres of land. It delivered a 600,000-square-foot, Class A distribution building at the end of last year. The company recently finalized plans for an additional 510,000-square-foot, Class A distribution building.

"The quality of Meridian Business Park and its amenities rivals all other state-of-the-art product throughout the Inland Empire region," says Dennis Higgs, Newcastle’s managing partner and founder. "The visibility, access to the freeway system and ports, and quality of its tenant base is unsurpassed. Kia Motors, McLane Foodservice, Sysco Foods and the University of California at Riverside all have located here for these reasons."