Hope I didn’t throw those of you looking for the Urban Land Institute update a curve last week. The information was held for this week’s column instead. As usual, commercial real estate seems to be attracting renewed attention in the face of the stock market’s contractions – it’s even starting to attract the attention of Wall Street analysts on MSNBC and CNN. According to former colleagues on the East Coast, billions of dollars of investment capital are looking for a place to go – but the mood is ultra-conservative.
The Urban Land Institute Issues Real Estate Forecast
When the Urban Land Institute (ULI) experts speak, real estate developers and investors in the U.S. and Europe listen. Over the years, this “Harvard” of real estate think-tanks has attracted such local talent such as David Sunderland (retired), former president of the Gates Land Company; Steve Schuck, founder of The Schuck Corporation; Fred Vietch, vice president with Nor’Wood Development; and Scott Smith, chief operating officer for La Plata Investments (developer of the 9,800-acre Briargate community since 1996).
In its July 23 Mid-Year Outlook, principal author, Dean Schwanke, vice president, development trends and analysis, predicts that the U.S. economy will grow by 2.5 percent in 2002 and 4 percent in 2003. “The prospects for attractive rent increases for most commercial properties are fair to poor over the coming year, and investment returns will be well below 2001 return,” the report says. Best bets for investors are identified as multifamily housing, neighborhood/community shopping centers, and warehouse industrial. The worst returns are expected on upscale/luxury hotels, high-rise suburban offices, resort hotels and downtown offices.
Specifically on the subject of financing, the ULI folks say that capital will remain steady, but “debt markets will impose increasingly stringent underwriting standards on real estate lending, especially for development.” REITS are expected to remain profitable while lenders will be “poised, but cautious.”
Colorado Springs reports of increased office vacancies and negative absorption seems to be indicative of national trends – including the addition of large amounts of sublease space. Industrial space looks likely to recover more quickly, says the ULI. “Vacancy rates will rise further in 2002, and rents will suffer, but the first half of 2003 should see considerable improvement, with vacancy rates falling again,” the experts project. Good news for retail specialists and developers like Kevin Kratt, Jay Carlson, Chris Barnett and John Gatto – as long as they stick to neighborhood shopping centers, which are expected to outperform power center and regional mall development. It will be interesting to see how quickly the new Lifestyle Center on the city’s north side will do as major retailers have suddenly slowed their commitments on expansion projects and long-term lease agreements.
And if you’re thinking of investing in European properties, stick with Paris and Milan. The same report says that Berlin is definitely too high a risk for the remainder of 2002.
Palmer Says: Tenants See Big Rent Breaks
In Michael Palmer’s summer 2002 newsletter he states that commercial tenants are beginning to see rents as much as 35 to 50 percent lower than those two years ago (based on Turner Commercial Research’s second quarter report). He also says that the recession may have officially “ended” in January 2002, but unofficially, it’s still very much alive. In fact, Palmer believes that the market will return slowly and steadily with an improved job market. Fortunately, when the market recovers, Palmer has seven properties listed that, combined, account for more than 250,000 square feet of office and industrial space. Two of those include large blocs of sublease space – Research Corporate Center with 54,000 square feet and Chapel Hills Atrium with 42,000 square feet available.
Trammel Crow Reports Four Leases in July
Pulse, Inc. leased 13,152 square feet in the Market Center Shopping Center on Austin Bluffs Parkway. Trammel Crow’s John Egan and Marty Johnson represented the landlord in the transaction. Egan and Johnson also represented the owner on a 5,400-square-foot lease for Parents Who Care, Inc. in the same retail center.
Randy Miller and Mike Matkin also represented the owners on two new leases. The first, a 6,703-square-foot office lease at 1150 Academy Point Atrium II, will be occupied by new tenant, the United States General Services Administration. The owner is Lend Lease Real Estate Investments. The Miller-Matkin team also represented Airport Place Park, the landlord, on an industrial lease of 7,200 square feet to Imaging Systems, LLC.
Two Land Sales Highlight Grubb & Ellis Report
While office and industrial leasing has slowed slightly, land sales are cooking. Grubb & Ellis/Quantum Commercial’s George Swintz, for example, represented the buyer, Michael Thibault, in the purchase of 31,901 square feet of vacant land at Omaha St. and Powers Blvd. on the city’s east side. Sales price was $239,257. G&D colleague, Cameron Mogadam, represented the seller, Bethesda Management Company, in the transaction.
In a second transaction, broker Martin Johnson of Grubb & Ellis/Quantum represented the buyers, Bobby and Betty Merritt, on the purchase of 52,863 square feet of vacant land located at the Falcon Town Center. Palmer-McAllister retail specialist, Steve Hunsinger, represented the seller, Falcon Town Center, LLP in the $283,321 land sale. It sounds like Peyton will soon get its first Sonic Restaurant.
Palmer-McAllister Land Deals, New Lease
In addition to the new Sonic Restaurant location in Falcon listed by Steve Hunsinger, retail specialist Mark Useman represented the seller, Norton Ray Smith, in the sale of two parcels of land to Colorado Springs National Bank for construction of a new bank facility. The two lots totaled 47,294 square feet and are located at 581 Highway 105 in Monument. Equity Realty and Investment represented the buyer in the $750,000 transaction.
Chicago Title will be moving into new offices at 2 N. Cascade in the Palmer Center, according to Greg Phaneuf of Palmer-McAllister who represented the tenant in the transaction. The 3,231 square foot office will provide the title company a downtown location. The owner was represented by Fountain Colony/Cushman Wakefield.
Forums Offer Inside Scoop
Hats off to Kim Rossbach of McGinnis/GMAC Real Estate and to Michael Podoyak of North American Title Company for the excellent programs they have been putting together each month. August’s presentation includes an update by Susan Renfro of La Plata Investments on Briargate and Pine Creek expansions. The monthly Tri-Lakes Forum breakfasts at the Gleneagle Country Club feature everything from issues facing residents of northern El Paso County to professional development and new real estate project previews. For more information, call 487-0000.
Sublease Space May Mushroom as Qwest Faces Investigation
In a conversation with Kristine Bain, director of research for Trammel Crow, interesting information on a Denver sublease situation came up. Bain says that last year’s “boom” in northwest Denver slowed to near-bust levels by third quarter 2001, with numerous dot.coms and technology companies leaving vacant sublease space in their wake. The researcher is currently working on a project to determine the amount of space Qwest holds in the Mile High City, in anticipation of federal accounting investigations. Would you believe the company currently tenants more than 2.5 million square feet of space just in Denver’s CBD? Overall, Bain says the market for lease space seems to be rebounding. Similar to conditions in Colorado Springs, she sees increased showings and leases – but the deals have been much smaller than in the past.