Stan Johnson & Co. report: Single-tenant net-lease properties had second best year ever in 2016

by Dan Rafter

The commercial real estate market is a busy one today. And few property types are generating as much activity as are single-tenant net-lease properties.

Stan Johnson & Co. recently released its latest research report on this sector. And the biggest news? In the fourth quarter of 2016, the sale of single-tenant net-lease properties grew 34 percent to a volume of $15.4 billion.

According to Stan Johnson & Co., this fourth-quarter push was the second best on record for this sector. For all of 2016, single-tenant net-lease sales accounted for $47.6 billion in volume, the second highest this number has ever been.

Who is buying these properties? Stan Johnson reported that for the fourth quarter, real estate developers and other single-purpose entities represented 26.9 percent of net-lease acquisitions. These buyers, who spent an average of $11.3 million on their acquisitions, preferred office properties first, then industrial and retail.

Institutions such as life insurance companies, investment managers and trust departments purchased 16.5 percent of the single-tenant net-lease properties sold during the fourth quarter. These institutions spent an average of $16.4 million on their net-lease purchases, and preferred to buy retail properties first, then office and industrial.

Private equity funds purchased 16.2 percent of the net-lease properties during the quarter, spending a much larger average of $28.2 million on each deal. These buyers preferred office, then industrial and retail.

Stan Johnson reported that single-tenant office sales, a category that includes medical office space, enjoyed the strongest fourth quarter. Sales jumped by almost $1.95 billion, or 46 percent.

One of the bigger office single-tenant net-lease deals of the quarter was the joint venture of KAMCO and 90 NOrth buying a 330,000-square-foot office building in Cincinnati that was leased to General Electric for $107 million. Two of the bigger industrial net-lease deals took place in the Midwest, too. In DeKalb, Illinois, investment fund manager AIC Ventures acquired the 400,000-square-foot distribution center of Cast Alumninum Solutions in a sale-leaseback for a reported $69.4 million.

And in St. Cloud, Minnesota, Commonwealth REIT sold the manufacturing facilities of New Flyer, the largest bus maker in the United States to Broadstone, a REIT. The 338,000-square-foot facility sold for a reported $23.05 million.

Posted in Cincinnati commercial real estate, healthcare, Illinois, Illinois real estate, industrial real estate, Minneapolis commercial real estate, Minnesota real estate, national commercial real estate, office, Ohio commercial real estate | Tagged , , , , , , , , , , | Leave a comment

Technology and innovation in St. Louis reshape the workplace

by Sara Freund

The geography of innovation has changed—and St. Louis is leading the way.

The Cortex Innovation Community in St. Louis is a prime example of an ‘innovation district,’ according to Brookings Institute researchers Bruce Katz and Julie Wagner. Innovation districts are places where institutions, universities, startups and corporations work together in a collaborative environment. This means companies share work space, network at the café on campus, educate each other and offer one another tech, legal, research and business tools.

The vibrant 200-acre Cortex campus is integrated into the community, near public transportation, is home to hundreds of companies and provides valuable, specialty resources for tenants.

“In my visit to St. Louis, what struck me was the level of commitment to cultivate a local ecosystem of innovation,” Wagner told REJournals.

Wagner cited examples of universities moving activities to Cortex, which stimulates growth, purposeful clustering of innovation centers, programs focused on growing companies and opening up over a dozen laboratory spaces to support startups.

At Cortex, tenants receive more than just an office space they get valuable resources from a supportive community and opportunities to collaborate with their neighbors. Every week at Venture Café, there are events and opportunities for people to connect, such as Thursday Gathering or Venture Café Nights. The programs and events allow chances to network but also provide learning sessions.

Cortex is described as a “knowledge community” on its website—it’s a vibrant setting for work, play and life that is anchored by laboratories and offices. It also offers restaurants, cafes, boutiques, outdoor spaces and soon a hotel. Tenants include Pfizer, Washington University Genome Center, Washington University School of Medicine, Square, Boeing and now Microsoft.

In March, the company announced it would open a new regional headquarters and a Microsoft Technology Center in Cortex’s Central West End District. The MTC in Cortex will be designed by HOK and open in summer of 2018. The MTC plans to support a booming tech scene with project strategy, business solutions, resources for cloud, mobile and social help, and optimization of their technologies. Beyond business, Microsoft will offer software grants and educational programs for students, nonprofits and the community.

In the past, the workplace was isolated—people mostly drove to a suburban office, worked in a lonely cubical and kept all ideas within the company, according to Wagner’s research. What’s in demand today is very different—walkable, urban, collaborative work environments. And that changes the way office space is designed, how multi-tenant buildings are leased and how employees collaborate.

“We’re in a position where we are much more comfortable sharing than we were before. Using an Uber to get somewhere, connecting to wifi in a café, storing our data on a cloud. Sharing is happening in a different way and now we’re seeing that in the workplace,” said Margaret McDonald of HOK architecture firm.

McDonald is a vice president at HOK and director of interiors. She’s responsible for the design of the @4240 building in the Cortex Innovation Community. Her firm, HOK, also created the Cortex master plan and designed Cortex One.

One of McDonald’s clients equated working in the Cortex community to being on a college campus. There are infinite opportunities to meet new people and spaces to work and meet. Plus, it’s a highly sociable environment. Plain and simple, it’s inspiring.

“It is an interesting shift to think about,” McDonald said referring to the changes she sees in how multi-tenant buildings are leased.

“The previous approach to filling a building was attracting tenants to a location and getting them to take up square footage. The tenants at Cortex sign leases for opportunities to collide and connect. They think, ‘Wow, Microsoft is in this building and I want to be, too,” McDonald said.

Offices used to be designed so that the employee could do everything in one small space—now companies are realizing that this approach doesn’t work, McDonald said. Giving people access to different ways of working and different choices lets them be more productive.

Technology is a huge catalyst in changing the way office space is designed. Offices are going cordless, offer more collaborative spaces and provide office personalization. This means incorporating charging pads, a selection of work areas, outdoor spaces and reconfigurable walls to keep a balance between privacy and communal. McDonald thinks the future of offices will become entirely customized so that when an employee walks into his or her space, the room knows what temperature, screen brightness or apps to open at different times of day.

Places like Cortex give the stereotypical workplace a shot of adrenaline and makes it harder to imagine a future where half of the population works from home.

“Most of us want to be around other people and gather together. If you’re proud of what you’re doing than you’re going to want to come together,” McDonald said.

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Lancaster Pollard survey: More affordable apartment projects on the way?

by Dan Rafter

Developers will be building plenty of affordable multifamily projects during the rest of 2017, if the results from a housing survey released in April by Columbus, Ohio-based Lancaster Pollard are to be believed.

In its survey of about 2,400 multifamily specialists from across the country, Lancaster Pollard found that 39 percent of multifamily leaders predict that affordable apartment projects will see the most growth in demand during 2017. The survey found, too, that 45 percent of respondents were planning affordable multifamily construction projects in 2017.

This is good news. Plenty of new high-end apartment projects have been built across the country. But the rents at these apartment projects are so high that not many consumers can actually afford to live in them. The need for affordable multifamily projects, then, is high.

The survey by Lancaster Pollard is an indication, at least, that some new affordable multifamily developments will be rising this year.

The percentage of survey respondents who said they were planning affordable multifamily projects rose this year by 5 percentage points when compared to the survey’s results of 2016.

And as more developers plan to take on affordable residential projects, the percentage of those saying they planned market-rate residential construction projects this year took a small dip. Lancaster Pollard found that 12 percent of respondents planned a market-rate residential project this year, compared to 17 percent who were planning one last year.

According to the survey, 26 percent of respondents planned to build affordable independent-living seniors projects this year, while 5 percent planned to build market-rate independent-living seniors housing during 2017. An additional 12 percent said they had no residential projects planned for the year.

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Louisville still driving Kentucky’s economic fortunes

The Omni Hotel opening next year promises to provide another boost to downtown Louisville.

by Dan Rafter

Kentucky has several important metro areas, with cities such as Lexington, Bowling Green and Covington serving as economic engines for the state.

But today, no single metropolitan area is providing as big of a boost to the state as is Louisville.

You can credit this to Louisville’s booming industrial sectors, which is seeing a steady wave of new spec construction. You can also point to the area’s tourism industry, the Bourbon Trail attracting plenty of visitors each year.

The city’s office and retail markets are thriving, too, with vacancy rates falling and new retailers and restaurants flocking to the center of Louisville.

Louisville, then, has become an even more important city for Kentucky. Douglas Owen, senior vice president for brokerage in the Louisville office of JLL, doesn’t see this changing any time soon.

“I don’t want to say that Louisville is the only economic driver for that state. Kentucky has plenty of key metro areas,” Owen said. “But Louisville is certainly an important driver right now for the state. Our city officials have become aggressive in turning our downtown into a true live, work, play area.”

Downtown strength

Owen said that Louisville’s downtown has changed significantly during the last decade. Just 10 years ago, downtown Louisville featured maybe four restaurants. When work ended for the day, most people simply went home, Owen said.

Today? That has changed. A steady stream of gourmet restaurants has opened in downtown. Retailers – both independent and name-brand – have hit the center of the city, too, transforming downtown into a vibrant neighborhood that no longer shuts down at 5 p.m.

“There has been a tremendous change,” Owen said. “The retail investment over the last 10 years has been amazing. Boutique hotels are coming. There are festivals. Downtown has come alive.”

There is one key puzzle piece missing, though: a big multifamily development in downtown Louisville.

“Right now, that residential component is what downtown Louisville is lacking,” Owen said. “We could definitely use some residential construction right in the heart of downtown. To have that come up will be a draw for more Millennials.”

The time is certainly right for such a development. The Whiskey Row section of downtown Louisville is an example of the renewed energy here. A mix of new and established restaurants is helping to bring tourists to this key stop on the Bourbon Trail.

Professional soccer team Louisville City FC has plans for a major investment near downtown, too, announcing this April that it has selected 40 acres in the Butchertown neighborhood, just east of downtown Louisville, for a proposed 10,000-seat soccer stadium. The stadium would be part of a larger retail, office and hotel complex that would open here as early as 2020.

John Hollenbach, a dveloper who is also part owner of the soccer club, called the site “far and away the best option” during a news conference announcing the soccer team’s plans.

Downtown Louisville has already seen a key addition to the downtown scene, new hotels. The most important of these is the Omni Louisville Hotel, scheduled to open in the spring of 2018 at 400 S. 2nd St. downtown. The hotel will bring 612 guest rooms and suites, and is rising just one block from the Kentucky International Convention Center. The Omni will also include 70,000 square feet of meeting and event space and a 20,000-square-foot market and grocery.

The stats certainly point to a city with a bustling commercial real estate market. CBRE in early January reported that the Louisville office market saw total net absorption of 318,112 square feet of office space in 2016, a strong performance. The Louisville market also saw its Class-A office vacancy rate fall 20 basis points to 10.8 percent in the fourth quarter of that year.

“And we expect this to continue in 2017,” said David Hardy, managing director of CBRE’s Louisville office.

The Louisville industrial market has been strong in 2017, too, according to the latest research from JLL.

In the first quarter of the year, the Louisville market absorbed 605,767 square feet of industrial space, JLL reported. And the industrial market enjoyed a strong finish to the first quarter when Clarion Partners purchased the 645,840-square-foot Air Commerce II building from Molto Properties for $42.3 million.

The total vacancy rate in the Louisville industrial market fell to 10.2 percent during the first quarter, according to JLL. Average asking rent rose for this sector to $3.70 a square foot.

“It’s not just office buildings and work downtown now,” Owen said. “There are more reasons to come downtown. A lot of companies want to open in downtown Louisville. The Millennials don’t want to commute to the suburbs. They want to work downtown and then go out to the bars and restaurants. They want to work close to where they live. We are on the precipice right now of really having all that downtown.”

Again, Owen says that more residential construction downtown is the missing ingredient. Once residents have more places to live in downtown, Owen said, they will flock to the city center.

A steady market

Like many major Midwest metro areas, Louisville benefits from a steady, if not explosive, economy. The city doesn’t see big upswings or, alternatively, big downturns.

Instead, the local economy remains stable, a blessing during the country’s rougher economic patches.

“You might see more peaks in markets such as San Francisco, Chicago or New York,” Owen said. “We don’t see those peaks here. But with that, we also miss the deep valleys that you see during recessions. We seem to be more stable, more resilient.”

Owen said that while Louisville might not get the press that some other bigger cities receive, it does tend to grab its residents. Owen said that he’s seen several executives who have been transferred to Louisville. When they eventually retire, they often come back to the city, even if they only spent a few years in Louisville.

“It’s just an attractive city,” Owen said. “It is small in terms of geographic area, but it has a lot of the arts and culture that people want to see in an urban environment. The University of Louisville is here, a great research university. There are shops and restaurants and entertainment. There are a lot of reasons to come back to Louisville.”

Because of its stable nature – and the growth of its downtown – Louisville is poised for a strong second half of 2017, Owen said.

“I’m bullish on the next few months,” he said. “The activity on the office side has already been strong, and I expect that to continue. I think we’ll only continue to see more investment and more commercial activity in Louisville the rest of this year.”

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Spec construction rising, vacancies falling in St. Louis industrial market

by Dan Rafter

The St. Louis industrial market got off to a hot start in 2017, with 1.69 million square feet of net absorption in the first quarter of the year, according to the latest research from Cushman & Wakefield.

The first quarter also saw developers deliver 1.74 million square feet of new industrial inventory to the St. Louis market.

Brian Ungles, managing principal of the St. Louis office of Cushman & Wakefield, said that during the last two years, developers have added 5.45 million square feet of speculative industrial inventory to the market. And this space has proven popular, with tenants leasing more than 3.63 million square feet — or 66.7 percent — of it already.

Ungles said that 2.84 million square feet of industrial space is now under construction in the St. Louis market. Of this space, a high 87.8 percent is being built on a speculative basis.

And this is just the start of the good news for the St. Louis industrial market. The sector’s vacancy stood at a low 6.7 percent at the end of the first quarter of this year. That’s far below the historic average for this sector of 8 percent.

St. Charles County was the most popular industrial submarket, seeing more than 1.1 million square feet of net absorption during the quarter. The North County submarket saw net absorption of 411,000 square feet, the second-busiest industrial market in the St. Louis area.

The average asking rent for industrial space here rose to $4.45 a square foot, a modest increase from $4.31 a square foot in the first quarter of 2016. That represents an increase of 3.25 percent year-over-year.

What does the future hold for the industrial market here? Cushman & Wakefield says that developers will bring more industrial space to the market throughout the rest of 2017. This is good news, but the company does warn that developers need to watch demand closely. There is a possibility that developers will add too much spec industrial space to this market.

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The power of urban living: Relying on multifamily housing to transform a former paper-mill town

An overhead view of the Triangle development site in Wisconsin Rapids.

by Dan Rafter

The city of Wisconsin Rapids isn’t unlike other Midwest towns: This Wisconsin city once relied on busy paper mills for jobs. And when the businesses running those mills downsized, the city struggled to reinvent itself.

Today, though, city officials say they have a vision for the future here. Wisconsin Rapids officials have big plans for their city’s waterfront. And these plans center on the future of the Triangle, a 2.1-acre-site that serves as the unofficial entry to the downtown of this Wisconsin city located nearly equidistant from Green Bay and Eau Claire.

And like other Midwest cities that once relied heavily on a single industry, Wisconsin Rapids is turning to downtown multifamily housing to serve as the catalyst for its rejuvenation.

The Triangle site that has city officials excited about the future is adjacent to Wisconsin Rapids’ waterfront and courthouse and overlooks its most important natural resource, the Wisconsin River.

Zach Vruwink, the mayor of Wisconsin Rapids, envisions a bustling mixed-use development for this site, one that will bring much-needed multifamily housing to the city’s downtown. Vruwink knows that until Wisconsin Rapids can offer more downtown housing, it will struggle to attract the mix of retailers, office users and restaurants that the mayor sees one day bringing residents and visitors alike to the community’s central hub.

“This site offers great proximity to the hardest-working river in America,” Vruwink says, referring to the Wisconsin River. “Whichever developer builds on it will also be in the center of the new life that we are seeing in this community. A developer will have the chance to be a big part of the reinvestment that is happening in our downtown today.”

New life for a hard-working city

For a century, Wisconsin Rapids revolved around the area’s biggest employer, Consolidated Papers, Inc., with Vruwink referring to the city as a paper-mill town.

Consolidated Paper, though, left Wisconsin Rapids in 2001, vacating all of the company’s office space here. This space had sat largely vacant until Wood County — the county in which Wisconsin Rapids sits — acquired Consolidated Papers’ headquarters building. The county is now moving into the space, giving it new life and bringing about 200 workers to the space.

That’s good news for Wisconsin Rapids, and has given Vruwink and other city officials hope that even more development can follow, helping to trun the city’s downtown into a bustling area of businesses, shops and restaurants.

Wisconsin Rapids has already developed a master plan for its public riverbank park areas, and has received a matching grant of $675,000 from the state of Wisconsin to begin the first phase of this project. In late 2017, the city expects to break ground on a new waterfront trail and other park amenities.

“The goal is to bring residents to the parkland we have along the riverfront,” Vruwink said. “We want to get people downtown but also keep them downtown for a longer period of time. We think that boosting our public park spaces is a good start to this.”

This, though, is only a start, something that Vruwink recognizes. The city already received a boost last year, when Aspirus Riverview hospital, Wisconsin Rapids’ main medical provider, announced that it will spend $25 million to expand and improve its facilities during the following two years.

Included in these improvements is a new family birthplace center with 10 hotel-like suites.

Vruwink said that he expects this momentum to continue with the Triangle site. A recent study showed that Wisconsin Rapids needs more downtown housing than it currently has. Vruwink said that he hopes redevelopment of the Triangle will provide this much-needed housing.

“That study reaffirmed our own feelings,” the mayor said. “A lack of downtown housing has resulted in a lack of other businesses coming here. We think that a mixed-use development will be a good fit for the Triangle.”

Downtown Wisconsin Rapids does have retail already, mostly smaller restaurants and retailers. But Vruwink said that the city’s downtown retail strip is dated. There is potential, though, with the core businesses of the courthouse, bank and county administrative offices serving as a launching pad for whatever new businesses will one day come to the city center.

“We think that Wisconsin Rapids offers a growing opportunity for developers,” Vruwink said. “We think we are a good option for developers that want to move to a new market, one that is a bit smaller than some of the other larger markets but is ready to grow. We believe that the city’s willingness to reinvest in itself, to put money on the line, represents a great opportunity for developers.”

Vruwink said that he and his fellow city officials are willing to be patient as they wait for the right developer for the Triangle. The city has a deadline of June 1 to receive proposals. As of early April, the city had received one response from a developer. A second developer had expressed interest, too. For Vruwink, it’s only a matter of time before the city finds that one right developer.

“This is a true opportunity for a developer to make a difference in this market,” Vruwink said. “A developer can be a part of a project that I believe will be catalytic in nature, stimulating new development downtown.”

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Hospitality industry set for solid, if not explosive, year in 2017

by Dan Rafter

The nation’s hotel industry is set for another solid year in 2017, with the industry seeing higher room revenues and a greater number of newly delivered hotel rooms, according to the latest hospitality report from Marcus & Millichap.

This doesn’t mean that the hotel industry doesn’t face challenges. There’s Airbnb, of course, which Marcus & Millichap says remains a formidable challenger to traditional hotels. At the same time, Marcus & Millichap points to the White House’s strained relationship with Congress, which might slow the Trump administration’s efforts to increase infrastructure and defense spending.

Such a slowdown could impact the hospitality industry, as more infrastructure and defense spending could boost the national economy and inspire more business and leisure travel.

As for the numbers, Marcus & Millichap predicts that developers will add about 140,000 hotel rooms across the country this year. That is a jump from the about 100,000 hotel rooms that developers brought to the country in 2016.

Even with the extra rooms, though, occupancy levels will only take a small fall. Marcus & Millichap reports that room demand will increase during the year by 1.4 percent. Despite this increased demand, room occupany will slip to 65.2 percent, a dip of 30 basis points when compared to last year.

In more good news, both average daily rates and revenue per avaialble room should increase this year. Marcus & Millichap predicts that the U.S. hospitality industry’s average daily rate will increase 2.8 percent. This increase is a bit slower than last year’s 3.1 percent gain. Marcus & Millichap attributes this to increased competition from new hotels and home-sharing services.

Revenue per avaialable room will also see a small increase, rising by 2.4 percent this year when compared to 2016.

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