Freddie Mac: Rising apartment rents aren’t turning more renters into homeowners

????????????????????????????by Dan Rafter

Are U.S. adults buying more homes now that apartment rents are on the rise?

It doesn’t look like it. According to the latest research from Freddie Mac, most renters are staying with apartment living even as rents in cities across the country continue to creep higher.

“This contradicts what some in the housing makret think, as they expect more renters ought to be actively looking to purchase a home,” said David Brickman, executive vice president of Freddie Mac Multifamily, in a written statement. We believe rising rents are primarily a sign of increased demand rather than a signal that home home purchases will be increasing.”

Freddie Mac reports that apartment rents rose 3.6 percent in 2014 across the country and are expected to rise 3.4 percent above inflation this year. More than one-third of U.S. households now rent their homes, according to the U.S. Census Bureau.

Freddie Mac found that 38 percent of renters who have lived in their home two years or longer experienced a rent increase in the last two years. Only 6 percent saw a decrease in rents.

How happy are renters? A third of renters told Freddie Mac that they are very satisfied with their rental experience, while another 30 percent said that they are moderately satisfied.

And what do renters like most about renting? Freddie Mac found that they like the freedom from home maintenance, the greater flexibility over where they live and protection from declining home prices.

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CSM Corporation’s Scott Moe: Industrial market in full boom mode

 

A rendering of the Boone Avenue Business Center II

The Boone Avenue Business Center II

by Dan Rafter

Scott Moe counts Brooklyn Park as one of the most aggressive communities in the Minneapolis/St. Paul area when it comes to attracting new business.

That’s why Moe isn’t surprised that CSM Corporation’s Boone Avenue Business Center II in Brooklyn Park has managed to fill all of its available space.

“Officials in Brooklyn Park are always working hard to figure out how to attract businesses and how to create one of the best business climates in the Twin Cities area,” said Moe, vice president of leasing and development with CSM Corporation. “The officials there are going out of their way to figure out how to make their community attractive to companies. Brooklyn Park really stands out right now in that northwest submarket and in the Twin Cities area.”

The latest example? Output Technology and Superior Paper Handling Solutions recently leased 22,975 square feet of office and warehouse space at the Boone Avenue Business Center II.

The new leases bring this project from 69-percent to 100-percent occupancy.

The Boone Avenue Business Center II is located at 7150 Boone Avenue North and features easy access to Interstate-694 and Interstate-94.

Dan Terry of JLL represented CSM Corporation as the exclusive leasing agent for the Boone Avenue Business Center. Brian Netz of Colliers International represented the tenant.

Moe said that CSM Corporation has been able to keep the Boone Avenue Business Center building filled because of that site’s ideal location close to highways and in the booming Northwest submarket of the Twin Cities.

“The building has really good access to transportation arteries,” Moe said. “And it’s a well-maintained building with a very sizable truck courtyard. It is a great location for employees who can live around the Twin Cities and still easily get to the site. And it’s a good image building that has plenty of drive-up appeal. It helps to have a building like that when you are attracting potential employees for recruiting.”

Moe says that there is always turnover at any industrial building. Companies might outgrow their space and need to expand. Others might get sold, and the new buyers might move operations to a new location.

But even when these inevitable turnovers happen, CSM Corporation should have little trouble finding replacement tenants, Moe said.

“There’s a long history of companies locating in the Northwest submarket,” Moe said. “Success breeds success. There is good executive housing in this area. It has a great employee base for what I would call high-end blue-collar employees, skilled labor. The Northwest submarket will remain strong for a long time.”

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Thanks to Oppidan, grocery-anchored retail trend comes to Twin Cities-area lakeside community

kowalski photo for oppidan excelsior story

by Dan Rafter

Excelsior had long been known mostly as a resort town, one that attracted tourists from the Twin Cities — just about 12 miles away — and beyond during the summer months but was quiet when the temperatures fell.

And why not? This Minnesota city sits on the shores of Lake Minnetonka. And its population in 2010 was a smallish 2,188. That would seem to be the definition of a resort town.

But Joe Ryan, president of national property development firm Oppidan Investment Company, says that this is changing. Today, Excelsior is becoming a 12-month destination, he said. One that attracts visitors all year long to its shops, recreational activities and restaurants.

That’s why Oppidan has invested so much into its Excelsior Marketplace development. This development — which was just about completed by press time — is a retail and office project that sits on the former site of Mason Motors, Inc., at the busy intersection of Water and George streets in downtown Excelsior.

“Excelsior has changed over the years. It’s become a real destination in the Twin Cities area,” Ryan said. “The city officials have done a nice job keeping the historic nature of the community while expanding its amenities. You are seeing the housing stock improve nicely. Then there’s the lake. Excelsior is like a front door to the lake. You are seeing empty nesters settle in Excelsior. You are seeing younger families there. It’s a diverse mix of a community that is now taking off quite nicely.”

The highlight of the new development is a Kowalski’s Market grocery store. This store is just about finished, and is scheduled to open in the middle of the summer. Oppidan will move its corporate offices to the upper level of the retail and office building by the middle of July.

Miyabi Japanese Asian Bistro and M the Art of Hair salon, both of which are located on street level, will open their doors in the summer months.

“The Mason Motors site was full of potential when we purchased it, and it’s incredibly rewarding to see our vision coming to fruition,” Ryan said of the new development.

Oppidan bought the former Mason Motors building and adjacent property in 2012. Steele Fitness became the first tenant here in the early months of 2013. Soon College Nannies + Tutors, SportClips and YogaFit joined the development. That part of the project, a building of 8,744 square feet, remains fully occupied today.

Oppidan is now searching for three new tenants for about 4,000 square feet of remaining space in the retail and office building on the site.

Ryan is especially excited about the Kowalski grocery store. Grocery-anchored retail developments have been thriving. This makes sense: People need to eat whether they are thriving or struggling economically. And grocers attract a steady stream of customers. This helps the retailers that surround a grocer.

The Kowalski store will offer ready-made meals and organic produce. That’s a big selling point today.

“The grocery business is changing so much,” Ryan said. “To have a smaller, more neighborhood type of offering with high-quality produce and meat — yet in a smaller footprint — is very inviting. The organic play is an important part of this industry, too. The Kowalski organization is a leader in that field. The city is fortunate to have them as part of the community. We think it is going to be a spectacular fit.”

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What happens when a shopping mall dies

A quiet Northland Center mall in its last days.

A quiet Northland Center mall in its last days.

by Dan Rafter

Northland Center Mall in Southfield, Michigan, was once the busiest of places.

First opening to the public in 1954, the mall featured a four-level Hudson’s department store. Six years later, the mall opened its movie theater, one that featured a then-futuristic Cinerama screen.

And in the 1970s, construction crews enclosed the mall. In its boom days, Northland Center boasted about 100 stores.

Today, the mall sits empty. Macy’s was the mall’s last remaining anchor, and it closed on March 22 of this year. That was a significant date; It was exactly 61 years since the mall first opened.

Frank Simon

Frank Simon

The mall won’t be around for much longer. Frank Simon, managing partner of Bloomfield Hills, Michigan-based law firm Simon PLC, has been appointed receiver of the property. The plan is to find a buyer who will purchase the mall, knock it down and rebuild. Simon said that a big-box retail use would be a good fit for the site.

“A good redevelopment would be perfect,” Simon said. “Maybe a big-box store such as WalMart or Home Depot, that kind of retail, with some restaurants and banks around the site, would be a good use at that location. It might work for a medical use, too. There is talk that some medical user might be interested. That is the other option there.”

What happened?

How did a once-busy mall get to this point? Northland Center suffered from many of the problems facing other malls across the country.

Northland Center is far from the only mall that has shut down in the Midwest. Consumers’ tastes are changing, and many no longer want to spend an entire day strolling through an indoor shopping mall.

northland mall 2

“This mall was built in the early 1950s, so it’s not designed to today’s standards,” Simon said. “It’s not user-friendly. People who want to shop at a particular store have to walk a long way to get there. It’s like a maze inside there. You have to go through many turns, through several different sections, to get to a particular store. It really is a major process to find a particular store.”

Newer malls aren’t designed this way. They feature a higher number of exterior doors to allow shoppers to quickly find the stores they want.

Then there are the more popular open-air, outdoor malls. With these malls, consumers can quickly find their store, jump out of their cars, pick up what they want to buy and continue with the rest of their day.

It’s difficult to make a quick stop at a mall like Northland Center. Simon said that Northland Center boasted more than 1.6 million square feet of space. Today’s newer malls are often half that size or even smaller.

“They are more user-friendly,” Simon said. “They are easier to get around.”

Northland Center’s mix of retailers hurt it, too, especially after its anchors started to leave. Simon said that the enclosed malls that are thriving today are those that feature high-end, luxury retailers.

Northland Center lacked that. And so it closed its doors in September of last year, and Simon was appointed the mall’s receiver.

northland mall 3This is far from the first time that Simon has taken over as a receiver of a large retail property. He has been appointed a receiver for more than 81 properties, Simon said.

It’s certain that other aging malls like Northland Center will soon close their doors, too. Unless malls have the right tenant mix – think stores like Nordstrom and Macy’s as anchors – it will be hard for them to compete with the miles of strip centers and outdoor lifestyle centers that so many communities now feature.

And because consumers’ shopping preferences have changed – few shoppers want to spend long hours inside an enclosed shopping mall, while many others are doing more of the buying online – there’s no guarantee that enclosed shopping malls will ever see another heyday.

“Today it’s all about becoming user-friendly,” Simon said. “People used to go into a mall and spend several hours walking around. Now people want to go into a particular store, buy what they want and leave. They don’t want to spend an entire day at the mall. That is a big difference, and it’s why the outdoor open-air malls do well. You are outdoors. It is friendlier and quicker. That’s a big transformation.”

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Auction.com report: Commercial real estate deal volume hits new high in first quarter

Graphic courtesy of Auction.com

Graphic courtesy of Auction.com

by Dan Rafter

Auction.com recently shared some good news with commercial real estate pros: According to the company’s first-quarter Commercial Real Estate Market Monitor, the commercial real estate industry is in the middle of a strong recovery.

Auction.com reported that commercial real estate deal volume in the first quarter hit a new all-time high of $124.3 billion. That’s an impressive increase of 47.4 percent from a year ago and a jump of 0.1 percent from the fourth quarter of 2014.

Just the fact that commercial real estate deal volumes increased at all from the fourth quarter to the first is impressive: As Auction.com says in its report, most investors seek to wrap up their transactions in the fourth quarter, before the tax year comes to an end. That usually means at least some dip in transactions in the first quarter.

But not this year. Auction.com says that thi sis the first time that real estate deal volumes have risen at all from the fourth quarter to the first quarter since 2007.

“Investors continue to drive up market prices and compress cap rates, which suggests that they’re probably ahead of what the underlying fundamentals would support, especially in some of the hotter markets and sectors,” said Rick Sharga, executive vice president of Auction.com, in a written statement.

Sharga said that the strength of the commercial real estate industry today is a result of the high availability of capital and low interest rates. He pointed, too, at the continuing influx of foreign capital into commercial real estate. Investors from China and Singapore in particular have boosted their investment in commercial real estate. Sharga cited the $1.95 billion purchase of the Waldorf Astoria in Manhattan by Chinese firm Anbang Insurance Company as a noteworthy example.

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Broker Beware: Michigan court ruling on escrow accounts and broker’s liens could change the way you do business

Mark Plaza

Mark Plaza

By Mark Plaza,
Maddin, Hauser, Roth & Heller, P.C.

Here’s a warning to Commercial Real Estate Brokers: “Two wrongs don’t make a right.”

Be sure to release your broker’s lien upon the establishment of an escrow account.  In a recent decision that should serve as a lesson for commercial real estate brokers in Michigan, the Michigan Court of Appeals ruled against a broker for failing to release a lien in a case analyzing requirements under Michigan’s Commercial Real Estate Broker’s Lien Act.

The case involved a seller of commercial property who sold property in breach of the terms of an exclusive listing agreement. In response, the broker recorded a broker’s lien and attempted to foreclose by bringing a lawsuit against the buyer (and not the seller). The buyer counterclaimed for slander of title when the broker refused to release its lien on the property despite the buyer having funded an escrow account with funds sufficient to cover the claim.

Upholding the circuit court’s decision, the Michigan Court of Appeals ruled against the broker. It held that the broker violated the CREBLA by not releasing the lien because the statute required that its lien be released upon the establishment of a fully funded escrow account. To add insult to injury, the Court even upheld an award of special damages against the broker for Slander of Title.

Background

The dispute arose after GAM Properties, L.L.C. (the “Seller”) entered into an exclusive listing agreement with Anton, Sowerby & Associates (the “Broker”). The listing agreement entitled the Broker to receive 5 percent to 6 percent of the sale price.

In papers filed with the court, the Broker alleged that the Seller (and, subsequently, a Receiver appointed for the Seller) entered into “secret negotiations” with Mr. C’s Lake Orion, L.L.C. (the “Buyer”) without the Broker’s participation.  The Seller/Receiver and Buyer then agreed to terms on a lease with an option to buy, which the Buyer immediately exercised for $1.2 million.  Upon learning of the anticipated sale, the Broker recorded a broker’s lien for 5 percent of the purchase price ($60,000) as permitted under the CREBLA.

The contemplated sale proceeded to closing. Anticipating litigation, the parties at the closing funded an escrow account in the amount of $75,000 to satisfy the lien.  However, when the Buyer requested that the Broker release its lien, the Broker already had filed suit to foreclose on its lien.

Despite funding an escrow account, the Broker refused to release its lien claiming that it needed to conduct discovery to determine the exact amount it is owed.  Interestingly, the Broker only sued the Buyer and its lender, but it did not bring suit against the Seller/Receiver for breach of the listing agreement.  The Buyer countersued for Slander of Title for the Broker’s refusal to release its lien despite the funding of the escrow account.

Legal findings

The circuit court summarily dismissed the Broker’s claim and granted summary disposition in favor of the Buyer on its Slander of Title claim.  In a subsequent hearing on damages, the circuit court found that the Buyer is entitled to special damages, including costs and attorney fees.  The Court of Appeals affirmed.

According to the analysis of the Court of Appeals, it found that nothing in the CREBLA required a commercial real estate broker to be a party to the sale or that the statute required a broker’s input for purposes of establishing an escrow account.  In this case, the Broker recorded a $60,000 lien, and the Seller and Buyer created an escrow account sufficient to cover this amount.

Pursuant to the CREBLA, once an escrow account is established in an amount necessary to cover the lien, “the lien is extinguished and the real estate broker shall provide a release of lien . . . .”  This required the Broker to release its lien.

The Court observed that “[t]he CREBLA was designed to only protect the broker’s right to collect the commission outlined in the brokerage agreement, not to allow the broker to punish the seller for shirking its contractual promises.”  For this reason, the Court held that:

Plaintiff subsequently violated the act’s clear directive to release its lien once the buyer and seller funded an escrow account with an amount sufficient to cover the broker’s claim. Plaintiff’s continued refusal to release the lien created an invalid cloud on the buyer’s title.

Furthermore, because the Broker “failed to demonstrate the validity of its continued lien, or to dispel the claimed malice in response to [Buyer’s] motion for summary disposition[,]” the Court upheld the trial court’s judgment against the Broker and the award to the Buyer for Slander of Title, including special damages permitted by statute.

Key Takeaways

So, do two wrongs make a right? Was the Seller right to violate the terms of the listing exclusive agreement? No. But did this violation give the Broker the right to continue an action to foreclose against the Buyer after establishing a fully funded escrow account? Also, no.

For a commercial broker, this result may seem harsh, but a broker should be able to avoid the pitfalls of this particular decision by taking the appropriate steps along the way. Among other things, here are a few lessons that a broker should take away from this decision.

First, when recording a broker’s lien against real property, be sure to identify an amount sufficient to cover your anticipated commission. This amount cannot be improperly inflated, but be careful not to shortchange yourself either. By taking the time to record a lien that accurately reflects your anticipated commission, you should be able to protect your right to recovery in most situations.

Second, if an escrow account is fully funded at the closing to cover your lien, you must release your lien. It does not matter that your actual losses are greater than what is stated in the lien. The requirements under the CREBLA are very clear. By pursuing litigation to foreclose on a lien under these circumstances, you risk exposure if a buyer seeks to recover against you for slandering title.

Third, if you incurred other damages relating to a breach of an exclusive listing agreement, consider bringing an action against the seller for breach of contract. While the remedies against a buyer may be limited, the seller still has obligations under a listing agreement. After all, it is a binding legal contract. Although terms may vary, an exclusive listing agreement should include protections for a commercial real estate broker if a seller tries to cut the broker out of the process.

As another old adage goes, “an ounce of prevention is worth a pound of cure.” In the end, the decision reached in this lawsuit does not spell doom for commercial real estate brokers, but it does highlight the important of knowing your rights under the law and to take the kind of steps necessary before filing a lawsuit to make sure your interests are full protected.

For more information about what this ruling means to you and for your other broker questions, please feel free to contact Mark Plaza, an attorney with Southfield, Michigan’s Maddin Hauser, at 248-208-0710 or mplaza@maddinhauser.com.

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If they want to capture Millennials’ dollars, retailers need to focus on their e-commerce efforts

dtz retail report

Image courtesy of DTZ

by Dan Rafter

What’s behind the expansion of the U.S. retail sector? According to DTZ, the rise of e-commerce and a steadily strengthening U.S. economy has made all the difference.

These two factors should mean a strong second half of the year for the retail sector, according to DTZ’s summer retail report. And they should provide a boost to the sector in the years to come.

As DTZ says in its report, consumer confidence today is at its highest level since 2007. In April of 2015, the consumer confidence index stood at 95.2. The index’s 20-year average is 93.5, so consumers are especially confident today.

And confident consumers, of course, mean more retail sales.

But what about e-commerce? DTZ reports that e-commerce sales today account for just 8 percent of retail sales in the United States. However, e-commerce is becoming more of a force every year. DTZ says that e-commerce sales growth has been in the 15 percent to 20 percent range every year since 2010, while brick-and-mortar retail sales growth has ranged from 2 percent to 4 percent during this same period.

DTZ predicts that e-commerce sales will one day account for 20 percent to 25 percent of all retail sales.

E-commerce sales haven’t been the devastating force that many brick-and-mortar retailers feared. But they are having an impact. DTZ reported that 75 percent of all Millennials use the Internet to research their purchases before making them.

Only about 50 percent of Generation X consumers use the Internet to research their major purchases while only 35 percent of Baby Boomers do the same.

The message, then, is clear: Retailers if they want to capture the dollars of Millennials need to pay attention to their online marketing.

Life remains challenging for many major retailers despite an improving economy. DTZ reports that Macy’s is still the dominant department store player in the United States. But this company plans to close at least 100 stores in the coming year, DTZ said. At the same time, though, Macy’s will see net employment gains as it expands its e-commercial fulfillment capabilities, usually in the form of mega-distribution centers of 1 million square feet or more.

As far as vacancies go, San Francisco has the lowest retail vacancy rate at 2.4 percent. Reno had the highest retail vacancy rate, 14.2 percent in the first quarter of 2015. Detroit had the third-highest retail vacancy rate during the quarter, 11.7 percent.

There was good news in Louisville, though, which saw the second-biggest drop in retail vacancy rate from the first quarter of 2014 to the first quarter of 2015. Louisville’s retail vacancy rate fell from 8.1 percent in the first quarter of last year to 6.8 percent in the first quarter of 2015.

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