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Tuesday, April 12, 2016

Investment in Solar Energy Yields Consistent Returns

By Chris Fraser (Charleston, SC)

The sun is literally shining on new investment in a particular form of renewable energy across the U.S. and especially in South Carolina.

As someone who has had a long interest in solar power development, I was encouraged to see legislation in place – at the federal and state levels – to stimulate personal and business investment in solar technology as an alternative source of energy production.  As a result of increased tax incentives in South Carolina in particular, we installed an eight-kilowatt solar system on the roof of our family home in December 2015.  Given a mild month of March, our power bill was $0! In looking closer at our actual March power usage, which would have resulted in a $200 power bill under normal conditions, this savings was effectively a 10% return on our after-tax installation cost.

Avison Young’s office in Charleston, SC also has solar panels that generate electricity to supplement power for our operations. Like my family in the case of our home, Avison Young receives ongoing energy savings, depending on the actual amount of energy generated by solar, which will offset monthly costs and the cost of installing this system over the long term. In other words, Avison Young’s solar power system in Charleston will produce consistent annual returns on investment through reduced operating expenses and other benefits.

My personal and business experiences with solar energy reached another level recently with the release of the Avison Young Topical Report  Solar in South Carolina: Great for Business

As the report explains, the business case for investing in solar power has never been stronger for businesses and property owners in South Carolina. Bottom-line benefits can start accruing after just five years of solar power use, with longer-term benefits including ongoing savings on electricity bills and a reduced reliance on more traditional forms of power generation, which contribute to global warming.

The recent extension of the federal government’s solar energy investment tax credit (ITC) to 2021 and the state’s solar energy tax credit (which provides another 25% tax credit based on the purchase and installation costs, along with a five-year depreciation schedule), have helped establish an investment environment conducive to promoting solar power as a viable alternative energy source in South Carolina.

Recent advances in solar technology and mass production are driving costs down; and, with tax credits like those in South Carolina and other incentives, solar is becoming a more cost-effective solution across the U.S.

I encourage you to investigate your state’s solar power incentive programs – for residential or business purposes – and consider this positive form of investment.

For more details, please read the Avison Young Topical Report Solar in South Carolina: Great for Business on the Avison Young website.

Monday, April 11, 2016

Implications of Rising Protectionism for the Real Estate Industry

By Amy Erixon, Toronto

Collectivism is fundamental to both the “New Economy” and the real estate industry.  Immeasurable benefits, such as reduction in global poverty by over 2 billion people over the past 40 years are credited largely to rise in global trade and urbanization.   Economies of scale made this possible. Knowledge has become far more accessible, and costs of bringing an idea to market have been greatly reduced, thanks to harnessing of the internet.  Our lives have been forever changed. 

Staggering fortunes have been made by harnessing these forces and delivering solutions to the marketplace;   and yet rather than unlocking barriers to equal opportunity-there is growing evidence and considerable consternation over rising income inequality, corporate and private tax evasion and the pace of technological and demographic change upending society as we know it.   Hence the rise in protectionist rhetoric, but this is entirely the wrong tool to address these issues in today’s world. 

According to MIT’s School of Political Science, discord in the political world is not only increasing, statistically it is increasing exponentially.  As real estate professionals this should be great cause for concern – at the local, regional, national and international levels.  Say you are a builder – you rely on local and regional publicly funded infrastructure, available skilled labor and stable building codes and tax regimes.  Say you are an owner – what if your tenants suddenly find their businesses unable to function due to supply chain disruption, costs skyrocketing due to border crossing issues, tariffs and/or extradition of meaningful swaths of the workforce (this is how the housing situation became so dire in Spain during the last recession).   Say you are an international investor - $70 billion of foreign direct investment went into the US alone last year – risks are not insignificant of these assets being impacted in an environment of escalating counterproductive policy proposals.

Our economic health and social future depends on political leaders coming together to find ways to spread costs burdens equitably and ensure benefits of technology are unfurled ethically.   The January 30, 2016 Economist article – Going after Google suggests a common sense approach to dealing with tax avoidance that speaks to the direction in which comprehensive solutions lie in an increasingly global economy.   Every country taxes its corporations and residents on their worldwide income which is then redistributed back pro-rata to the source countries, accounting for both workers and consumers in the redistribution formula.  Ideas like this highlight that cooperation, not protectionism provides better solutions, both morally and economically.  

I profoundly agree with Peter Diamandis, author of Abundance is our Future.   The question is how do we get there.   Technology is key to solving most of the causes of distress and suffering in our world - that will be the topic of future blogs.     But technology cannot deliver its promised benefits, and neither can we hope to build and invest in healthy communities without functional and constructive public policy.  

Monday, March 14, 2016

Downtown Raleigh finds “new normal”

By Blake Thomas (Raleigh NC)

Downtown Raleigh, like most urban environments in today’s global climate, has been a hotbed for real estate investment and development activity during the current economic recovery. This emphasis on the urban core has dominated real estate news headlines in most metro areas, with many market participants attributing the trend to the rise of the millennial generation as social influencers, economic drivers and decision-makers in the workplace. Scores of real estate investors are attempting to capitalize on this trend of reurbanization, with projects that fill voids and create vibrant live/work/play environments.

More so now than during any other preceding period in the city’s history, Downtown Raleigh’s development pipeline is teeming with hotly anticipated projects, including: Lundy’s unnamed 301 Hillsborough mixed-use project; Dominion Realty’s Charter Square North; Beacon Partners’ The Edison Office Tower; Highwoods Properties’ major overhaul of One Bank of America Plaza; HQ Raleigh’s expansion; the North Carolina Department of Transportation (NCDOT) and City of Raleigh joint-venture renovation of Union Station; various hotel projects from CN Hotels, Winwood Hospitality, Summit Hospitality and others; along with countless apartment projects that continue to pop up on nearly a daily basis.

Perhaps no project is currently more anticipated in Downtown Raleigh by the general public than Kane Realty’s “The Dillon,” a $150-million mixed-use, adaptive reuse, redevelopment project. A prolific developer, which revitalized Raleigh’s Midtown (North Hills), Kane is expected to capitalize on Raleigh’s burgeoning, eclectic and dynamic Warehouse district with The Dillon, which will sit on 2.5 acres and is projected to contain more than 225,000 square feet of state-of-the-art office space, 260-plus luxury apartment units, community-serving retail and structured parking.

However, in the opinion of this author, the biggest game-changer right now for Downtown just might be the deal that was reached to sell The News & Observer’s 3-acre office campus to a locally-based developer for a reported price in excess of $20 million. The acquiring entity, Above The Fold LLC, includes veteran Raleigh real estate investors Michael Sandman, Mark Andrews and Joe Whitehouse, in partnership with a new real estate company called Loden Properties, recently started by Davidson & Jones executive Russ Jones and former York Properties executive Henry Ward. Exactly what is planned for the site is still a moving target, and the development team is, understandably, keeping its plans close to the vest, but mixed-use is likely the play, and would include a combination of office, retail, hospitality, residential (for rent and/or for sale) and community space.

All of this activity is attracting the attention of many regional and national developers and investors, as was evidenced by the very public auction of the City of Raleigh’s 1.2-acre surface parking lot at 301 Hillsborough.

Ultimately, the site was sold to a local developer for $6.3 million, but had plenty of regional interest. Less publicized, but significant, is New York-based real estate private-equity firm HighBrook Investors’ acquisition of a 31% tenants-in-common (TIC) stake in the Wells Fargo Capitol Center for more than $42 million.

The combination of escalating demand and dwindling supply – a lack of available “boxes” with “good bones” for redevelopment, and quickly disappearing, sizable, underutilized land tracts – is causing property values to skyrocket, as evidenced by the latest Wake County real estate tax reassessment. The county looks at the assessed values for each land parcel (and the corresponding improvements made thereupon) for property tax purposes once every eight years to properly establish the property tax base moving forward. Recent county tax reassessments saw commercial properties rise an average of 19%.

The best example of rising commercial property values in downtown Raleigh is the Hillsborough Street corridor tax district, where property values rose an average of nearly 70%. It would seem that the “new normal” has land values settling in around $6 million per acre (market value) for high-density, scalable, urban core development sites.

(Blake Thomas is a Vice President with Avison Young’s capital markets team in Raleigh.)

Wednesday, March 9, 2016

Avison Young named one of Canada’s Best Managed Companies for fifth consecutive year

By Mark E. Rose (Toronto)

On behalf of all Principals, we are proud to announce that Avison Young – for the fifth consecutive year – has been named one of Canada’s Best Managed Companies.
After competing against a wide range of companies nationwide to win the Canada’s Best Managed Companies award in 2011, 2012, 2013 and 2014, we are proud to announce that we requalified as a Gold Standard winner in 2015 for excellence in business performance.  
We are thrilled to have the opportunity to share the news of this prestigious award with our clients and partners.
This award symbolizes the success of our Principal-led, collaborative culture, growth strategy, and unique client-service model. Winning this award five years in a row gives us third-party confirmation that our values, accomplishments and culture are making a difference in the commercial real estate industry, and that we have established a solid, sustainable organization that is built to last.

Established in 1993, Canada’s Best Managed Companies is one of the countrys leading business awards programs that recognizes Canadian-owned and managed companies that have implemented world-class business practices and created value in innovative ways. Applicants are evaluated by an independent judging panel on overall business performance, including leadership, strategy, core competencies, cross-functional collaboration throughout the organization, and talent.

Over the past seven years, Avison Young has grown from 11 to 75 offices and from 300 to more than 2,200 real estate professionals in Canada, the U.S., Mexico and Europe. And we want to thank our clients, partners and employees who have taken us here, and whom we count on every day to reach our lofty goals.

Monday, February 22, 2016

Another Trend Takes Hold in Industrial Capital Markets

by Erik Foster (Chicago)

The industrial capital markets sector continues to fire on all cylinders in most every market across the country.  In Chicago, L.A. New Jersey and many other markets, a new trend is now taking a more favorable position with many investors. While there is a lot of talk about record setting pricing of core buildings in major markets, and even core buildings in secondary markets, we’re seeing a lot of interest in the “infill B” assets in major and secondary markets.

Those emerging hot spots are located around the perimeter of our larger cities, such as Chicago, Los Angeles and Northern New Jersey, the BWI Corridor and Miami. In Chicago, for example, the O’Hare market continues to dominate as one of the largest submarkets within the country given it’s access to O’Hare International Airport, rail and highway linkages, but also it’s close proximity to Chicago.  There is also a limited supply of land, and investors are eager to pull together deals on buildings they might not have considered several years ago. 

In addition, older buildings are being torn down in favor of new speculative development, which in many cases becomes leased before the work is complete.  The “spec-to-suit” phenomenon is prevalent in these infill markets where there is older B product.

With ties to a major core market, these infill markets have added cache and appeal to investors.  Typically higher yielding, they are a more affordable option than the true core product.  Finding that Class A asset in today’s market is a tricky, and highly sought after, proposition.

With lots of capital still chasing a smaller pool of assets, these major markets are attractive because they allow investors an entry into the periphery of those core markets. They also are popular because:

  •  Mature markets have proven fundamentals when compared to emerging markets.
  • Buyers of these Infill B assets have seen tangible rent growth
  • These cities offer the infrastructure that is key to the industrial base—airports, rail, intermodal, and, in some cases, ports.
  • Those sites are tied to densely populated areas, which are ideal for e-commerce and other consumer focused fulfillment businesses.

We’ve seen this scenario play out in even markets such as Southeast Wisconsin.  We assisted CenterPoint Properties in selling two portfolios, totaling 22 buildings and nearly 3 MSF in Milwaukee. The portfolios were heavily tied to the General Mitchell International Airport and the local population centers within Milwaukee, which continues to be a draw for regional industrial businesses.  Infill assets with tenants who need to be close to their customers were typical in these assets, and institutional investors took note.  Both of these portfolios sold to very sophisticated institutional capital sources, one of which was an offshore European fund.

The postings on this site are those of the bloggers and do not necessarily represent the views or opinions of Avison Young.