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Tuesday, April 30, 2013

Houston Real Estate: What the Pros think

By Rand Stephens (Houston)
 
The recent RealShare Houston conference brought out great insights from some of the top real estate professionals in Houston. I had the good fortune to moderate the Town Hall Panel where we had a vibrant discussion about what’s in store for the future of Houston. Here are some key takeaways:
 
·         For the first time in 30 years upstream, midstream and downstream sectors of the energy business are hitting on all cylinders. Houston leads the US in annual job growth.
·         Market fundamentals are excellent and there is an undersupply of inventory in most product types.
·         Houston is now included in the new term “Salty Six”. The term refers to the top US investment markets that all happen to be coastal cities: New York, Boston, DC, Houston, LA, San Francisco.
·         Houston’s property valuations still look very attractive compared to other major markets.
·         Houston’s rental rates still look attractive for users compared to other major markets.
·         While the class A office market is thriving, the class B market offers great buys as the pros expect to see significant improvement in class B fundamentals with a shortage of class A space available for lease.
·         Many of the large office developments are being done by global energy companies using their own financial resources without involvement from the traditional developer.
·         Houston’s investment in mobility infrastructure is paying dividends, however, the live, work and play trend is alive and well like most all cities. People don’t want to commute and locations that offer quality housing, education, office space and amenities will do very well going forward.

Thursday, April 25, 2013

Industrial Class B Investment Market Recovery

By Erik Foster (Chicago)

Many Class A/Core industrial properties have traded in recent years, and we have been fortunate enough to be part of many of these transactions.  The shortage of new construction and continued investor appetite for stable returns is opening the door to a wider pool of assets which are attracting investors attention; the Class B industrial market.  The data continues to point to a national recovery in the industrial real estate sector, yet some investors across the country are shifting away from a focus on Class A buildings toward the Class B market as pricing for A properties becomes out of reach and availability to purchase these assets become scarce.  As a result, B industrial assets—which have in the near term been overlooked by institutional investors—will see increased activity from a wider pool of investors in 2013 as both debt and equity demand continue.

Furthermore, the industrial market is giving the multi-family sector a run for its money as the preferred investment vehicle for institutional investors. This is due to historically steady cash flows, low capital/tenant improvement expenditures, and positive macro-economic occupancy drivers.

We delve further into these subjects, provide some predictive points and data in our most recent white paper.


Sunday, April 14, 2013

Benchmark Data Confirming Economic Benefits of Green Buildings

By Amy Erixon, Toronto

Whether or not you believe in Global Warming, as real estate professionals we all can appreciate the value of controlling operating expenses for the benefit of both our tenants and owners.  But hard data has been elusive concerning the long term net economic proposition of “green building” design and operations; leaving the sale of these attributes difficult on their merits and more in the category of “politically correct” or “risk mitigation”.  The good news is, if you know where to look, broad based, longitudinal data is beginning to become available to quantify those benefits to owners and users of real estate.

At a recent RealPAC sustainability committee meeting Nils Kok, Associate Professor at Maastricht University, a Berkley visiting Scholar and co-Founder of GRESB (Green Real Estate Sustainability Benchmark) presented the results of the Benchmark study, commenced in 2007 and involving over 30,000 buildings on four continents.  Perhaps not surprisingly, North America (full of energy producers) is not at the forefront of this movement, politically or professionally.  However, even in North America energy producing companies are six times more likely to be a “green building” than Banks or major Law Firms, the largest tenant groups in Class A office buildings.  (Makes you wonder what the energy producers know but are not telling the rest of us).
Statistically, Buildings consume 74% of all energy consumed in North America and Europe, and roughly half of that is from commercial uses.  Bottom line is energy matters to the building industry and controlling it can make a major impact on occupancy costs.   Here are a few of the Key findings from the Study:

·         After 30 years, less than 10% of the standing inventory is Green rated
      ·         Green-rated buildings between 2007 and 2010 achieved, compared to the universe:

o    3% higher rents
                  o    7% higher net effective cash flow
                  o    13 % higher transaction values

·         $1 of energy savings translated into $0.95 higher rents and $13 psf higher value
        ·         Green-rated buildings had measureably higher occupancy levels and lower volatility of returns (note 75% were rated "Class A" vs. 25% of the general sample)

I was surprised by three things in the study, first that only 11 US states have more than 7.5% of their office inventory certified.  These states are the obvious California, Washington, Oregon, Massachusetts and Colorado but also included conservative bastions of Texas, Lousiana, Georgia and Virginia with Minnesota and Illinois rounding out the list. Second, I was surprised by the overall average age of the building stock in the hands of institutional investors, green buildings averaged 25 years of age and sample pool averaged 53, although taking renovations into account the sample was only marginally older at 26 years (this is measuring by number of buildings, not square feet).  Lastly, to date the finding is that although tenants will pay more for better performance (platinum status vs. gold for example), investors are not so willing.  Gold LEED standard has been the sweet-spot for achieving surplus value in institutional portfolios.
The purpose of Nils' visit was to make a plea to Canadian institutional investors to participate in the benchmarking study.  There is no broad inventory currently of Canadian buildings with Green ratings. With less than 10% of the global building inventory certified "Green" broader participation is very important to substantiating the accuracy of the Data, and measuring our own performance in energy efficiency design.


 

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