Tuesday, July 29, 2008

Change your Terms on your Office Lease Agreement

Office space tenants often face the challenge of living with leases negotiated under market conditions different than the current ones -- a problem inherent in the office market's cyclical nature and typical lease terms of three to 10 years.
Lead times to acquire land, obtain governmental approvals for development, and design and develop a building can take 18 to 36 months or longer.
During this process, the market is being affected by supply and demand. In periods of excess supply, tenants benefit from downward pressure on rental rates and increased concessions. The reverse occurs when demand is strong.
An oversupply of space is the most favorable market condition for tenants, but with proper timing, strategic thinking and focused implementation of a plan, tenants can also benefit from a landlord-driven market of higher demand.
Planning for the future
While tenants should consider their future expansion needs, it is vital they spend time during negotiations on how they will be able to reduce their space. Many tenants make the mistake of believing the market they're in will go on indefinitely, and they negotiate from that position. But thought must be given to as many contingencies as possible.
When markets experience downturns, tenants must have flexibility in their leases to ensure they can reduce their space when necessary. Rent is generally a tenant's second-highest expense behind personnel.
There are two preemptive ways to structure a lease that have proven effective. First, tenants should consider having the ability to give back a percentage of their square footage or a fixed square footage during the lease term. Landlords often are hesitant to agree to this. But they are typically more receptive to the idea if:
The returned space is leasable.
The tenant provides ample written notice of its intent to downsize.
The tenant shares the cost to reduce the space.
And the ability to give back space is limited in scope -- such as after a certain amount of time or only once during the lease term.
This strategy requires that purposeful design of the space be accomplished up front to limit cost and disruption.
Second, a favorable sublease-
assignment clause should be part of the lease. This language allows a tenant to lease or assign their space to another tenant during the term. Key points to include in this section are:
The landlord's approval rights over the sublease tenant should be reasonable, specific and not arbitrary.
Structure a short approval process by the landlord.
An assignment to a tenant-related entity should not require landlord approval.
The use clause in the lease should be broad enough so a wide range of tenants can qualify to sublease the space.
And ensure the tenant can lease the space at whatever terms are necessary and not subject to landlord-imposed artificial rental rate requirements.
Already signed
Often, tenants find themselves needing to reduce their space while their leases don't say how to do so. In these cases, several strategies have proven effective.
It is critical from the beginning to establish open and timely communication with the landlord and property management team. Experience has proven good communication to be the key in the tenant-landlord relationship.
Second, present a plan to the landlord that shows a well-thought strategy. Merely saying "we need to downsize tomorrow" typically doesn't yield the desired results. It's more effective to state the specific size reduction, when it needs to occur, why it's necessary, etc.
Third, if there is a short period left on the lease, it can be beneficial to landlord and tenant to reduce space in return for extending the lease's term.
Fourth, tenants who show flexibility in their requests often find more receptive landlords. Relocating within the building, adjusting the timing of the downsize, keeping the same square footage and restructuring the rent are a few possibilities to explore.
Wrritten by:

Russell Noll, CCIM, CPM, is managing director, Tenant Advisory Services in San Antonio, for Transwestern, a nationwide commercial real estate firm with offices in San Antonio and Austin.

For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com

Wednesday, July 23, 2008

Spacehab moves headquarters within Houston

Spacehab Inc. has relocated its corporate headquarters in an effort to streamline its operations.
The commercial space services provider has moved from 12130 Highway 3 in Webster to 907 Gemini in Houston. The new office is in the Clear Lake area and close to NASA’s Johnson Space Center.
The new facility accommodates the firm’s ongoing fabrication and manufacturing operations, the company said, allowing Spacehab (NASDAQ: SPAB) to continue its efforts in prototype, mockup and flight hardware development and production.
“At Spacehab, we are constantly striving to find ways to serve our clients, while improving profitability,” said Brian Harrington, SPACEHAB’s chief financial officer. “I believe that this relocation and consolidation is integral to our strategic plans, and will provide a more efficient working environment for our employees.”for more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
or www.edayres.com

Monday, July 21, 2008

Sugar Land site now planned

Cherokee Investment Partners LLC, a Raleigh, N.C.-based private equity firm specializing in brownfield cleanup and sustainable redevelopment, highlights redevelopment of the former Imperial Sugar refinery property in its annual Sustainability Report (www.cherokeefund.com).
The main activity now is environmental remediation — primarily asbestos removal — which will likely last through the remainder of the year, according to Tom Darden, CEO of Cherokee.
“Sustainability is our business,” he says. “For more than two decades, Cherokee has used private equity, coupled with creativity and expertise, to purchase, clean up and reuse property.”
Cherokee bought the 150-year-old plant site, which closed in 2003, and adjoining property in July 2007 from Imperial Sugar and the Texas General Land Office in a transaction that won a 2008 Landmark Award for the firm. After the acquisition, Cherokee teamed with Southern Land Co. to redevelop the 720-acre site, which is located at the intersection of U.S. Highway 90 and Main Street in Sugar Land.
Before finalizing plans, however, Cherokee and Southern Land brought together planners, municipal staff and neighborhood residents in a five-day public land planning charrette led by Duany Plater-Zyberk, a national planning firm.
Cherokee and Southern Land have submitted civil engineering and design specifications for 90 single-family residential lots for the City of Sugar Land’s review and approval.
“The concepts for commercial, residential and retail spaces are very exciting, and we are anxious to begin rolling out images and ideas in the coming months,” says Tim Downey, CEO of Southern Land Co. “We’ve made good progress in a short period of time, and we credit the City of Sugar Land for helping facilitate what is a very technical and complex planning process.”
Through a contract with the Fort Bend County Museum Association, Imperial Sugar artifacts, photographs and documents will be preserved in an on-site Sugar Land Heritage Museum, the report says.
A community entrance, road and the Oyster Creek bridge crossing will be built to connect the community to area highways and the Sugar Land Airport.
“The project team is in the process of refining the master plan to integrate the various land uses on property, including office and commercial space and the reuse of the refinery site into shops and multifamily housing. Meetings with the Texas State Historic Commission are also taking place to determine the historic value of all structures located on the Imperial site,” Darden says.

For more information see www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com

Monday, July 14, 2008

Pension Funds Scale Back Outside Real Estate Advisors

In a world of daily cutbacks on everything but the price of oil, perhaps it was inevitable that the nation’s leading pension funds would find themselves in the same dilemma when it comes to their real estate investments.As the investment markets in general have become more bearish — particularly stocks, which have hammered fund returns this year — internal fund managers are closely inspecting their real estate strategies, and for good reason.According to a recent study of 50 of the nation’s top pension funds by Chicago-based financial services firm Northern Trust, U.S. and foreign stock performance produced negative 7% returns over the 11 months ended June 30. During the same period pension funds saw their real estate assets produce an 11% return.Real estate stocks have been another drag. The Dow Jones Equity All REIT Total Return index, which tracks 118 equity real estate investment trusts, fell 4.9% in the second quarter compared with a 1.4% gain in the first quarter. That second-quarter performance lagged behind the broader S&P 500 index, which saw a 2.7% decline.At the nation’s largest pension fund, the California Public Employees’ Retirement System, or CalPERS, some 80 outside managers oversee the fund’s $19.6 billion real estate portfolio. But last year San Francisco-based PCA Real Estate Advisors Inc. pitched CalPERS’ board of directors on the idea of investing more money with fewer advisors, an approach that was ratified in the plan’s 2008 budgeting.The Oregon Investment Council, which manages $77 billion in assets for various entities of the State of Oregon, recently increased its real estate allocation from 8% to 11%. The council employs 39 real estate managers, up from 30 last year. Now with guidance from PCA, the council is looking to take an approach similar to CalPERS and use fewer outside real estate investment managers in the future.The council’s $5 billion real estate portfolio has returned a paltry 2.95% through May of this year, but has yielded 21.76% over the past five years.Given the lower returns of late, every manager’s performance is under closer scrutiny, and top performers will likely rise to the top of the funds’ short lists. Still, finding investments suitable for the funds’ money is a tougher task than ever. Certainly the office markets, which account for the bulk of institutional buying, have remained moribund in 2008. Sales of significant office buildings totaled just $2.6 billion in May, about half the volume posted in April and 87% lower than in May 2007, according to New York-based researcher Real Capital Analytics.There are a few signs of life. Monthly office sales volume reported in contract doubled in May to $15 billion, a sum that compares favorably to the $23 billion of office sales reported closed so far this year.“The spike in deal making, rumors of 100 bidders for Pool 1 of the former EOP/Macklowe assets and even a slight improvement in pricing on a national level are certainly positive news,” says Robert White, president of Real Capital Analytics. “A recent spate of acquisitions by foreign investors has also contributed to the positive momentum. However, it is still unclear if this really is the start of a recovery or just a dead cat bounce.”Mark Vitner, senior economist with Wachovia, expects commercial property prices to fall 15% to 20% nationwide by year’s end. “Higher borrowing costs have led to a modest increase in cap rates and vacancy levels have edged up,” says Vitner. “Moreover, transaction volumes are falling as investors become more risk averse and lending becomes more restrictive. Both the NCREIF and Moody’s/Real Commercial Property Price Indexes have declined recently, indicating some softening in the deal pipeline. There is no question that deal flow and property values will slow further this year, the only question is the pace of change.” For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net

Growing food distribution firm builds on appetite for expansion

Glazier Foods Co. is being well-served by the local economy.
The Houston food distributor has moved a planned expansion to the front burner faster than expected to handle gastronomical growth. The company's diverse buffet line of customers includes restaurants, country clubs, nursing homes and a variety of other businesses.
John Miller, chief financial officer of Glazier Foods, says job growth in the area is feeding the company's bottom line. He says Houston residents who may be pinching pennies have not yet adversely affected Glazier and its customers.
"All these people are eating," Miller says. "There are more gross dollars spent in food service versus retail."
To achieve set expansion goals, the Glazier family partnership entered into a deal where Houston-based GSL Welcome Group LLC and GE Capital acquired the company's existing facility and will build the additional square footage the company needs.
The family partnership sold the 286,000-square-foot building on 33 acres to GSL in mid-June for an undisclosed amount, and is leasing the property back from the new landlord.
As part of the arrangement, GSL will build a $14 million, 160,000-square-foot addition to Glazier's structure at 11303 Antoine Drive, just north of Beltway 8.
Real estate sources say sale/leaseback arrangements provide companies with an avenue to free up capital and earn a higher return compared to ownership of real estate.
In Glazier's case, Miller says, the arrangement made the expansion possible without putting a strain on the operating company or necessitating the need to raise additional capital from family members.
National interest
Glazier hired Yancey-Hausman Commercial Real Estate Services LLC a year ago to find a buyer for the property.
"We had tremendous interest from all over the nation," says Pat Pollan, a senior vice president at Yancey-Hausman.
Pollan says GSL outbid a field that included real estate investment trusts on the New York Stock Exchange and large investment groups from California. He says one of the losing bidders wanted the deal so badly that representatives asked Glazier to reconsider awarding the business to GSL.
Welcome Wilson Jr., president of GSL, says this deal fits perfectly into his company's business model. GSL builds and acquires single-tenant industrial buildings with the intention of owning them for the long term.
"It's a substantial building for our portfolio," Wilson says.
GSL plans to break ground on the Glazier expansion in about a month, with completion scheduled in nine months. The project will add freezer space on the northeast end of the building and dry storage space on other end.
Once the build-out is complete, Glazier will have 446,000 square feet of space.
The 72-year-old firm is experiencing growth throughout Texas, Louisiana, Arkansas and Oklahoma. Glazier Foods leased 170,000 square feet in the Dallas area last year to accommodate growth in North Texas.
In 2005 the firm consolidated local operations from five facilities into one state-of-the-art building on Antoine.
Houston-based W.M. Dillard & Associates LP designed the initial building, and at the time, drew up plans for a phase two expansion, which was expected to happen some time between 2010 and 2012.
Glazier's Miller says the company is ready for the next helping of growth.
"We wanted to be proactive and be prepared for future opportunities by having the space," says Miller. for more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net

Baker Hughes sells

Baker Hughes Oilfield Operations has sold its massive Central City Industrial Park redevelopment on 75 acres in the shadow of downtown.
Pelec Central City purchased the property, consisting of 18 buildings at 5301 Polk St. near Wayside.
The industrial park was once home to the Hughes Tool drilling bit manufacturing plant started by Howard Hughes Sr., the father of the reclusive millionaire, in the 1920s. It came into the Baker Hughes fold when it merged with Baker International in 1987.
The property was redeveloped as an industrial park after the Hughes Christensen subsidiary moved to The Woodlands in 1993.
The Boyd Commercial team of R. Conrad Bernard represented Baker Hughes while Dan Zoch represented the buyer, a local partnership with John Frantz and John Pogue as principals.
"Baker Hughes' primary objective in that renovation was to be a good neighbor to the east side of town," Bernard said. "Rather than shutter the plants, Baker Hughes spent millions of dollars tearing down nonfunctional buildings and renovating buildings to lease out to third parties."
Located about three miles east of downtown, the complex contains 1 million square feet of manufacturing and distribution space and is 82 percent leased. Among its 13 tenants are Grant Prideco, HAJOCA Corp., Pilgrim's Pride, Baker Oil Tools, Reed-Young Co. and Suddath Relocation Systems. The state of Texas owns a 245,000-square-foot office facility in the industrial park. About 2,500 people work in the park.
"Central City kind of sparked some of the revitalization throughout the East End," said Ralph Crabtree, director of real estate for Baker Hughes.
Examples of improvements that followed include the redevelopment of Gulfgate Mall and the emergence of the Greater East End Management District to promote economic development.
"Central City is a value-added investment for Pelec and offers endless opportunities for redevelopment, including industrial, retail and residential uses," Zoch said.
Pelec plans to continue operating the industrial park.
"Our feeling is that the Port of Houston is kind of the heartbeat of Houston, Texas, and we wanted to be a part of that," Pogue said.
Terms of the sale were not disclosed. The asking price was about $12.5 million. Financing was arranged by Rob LaRue of Live Oak Capital through Legg Mason Real Estate Investors.
Copyright 2008 Houston Chronicle For more information see www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net

Thursday, July 10, 2008

High Gas Prices Driving Real Estate in New Directions

The $4-plus/gallon of gas threshold hit this summer has pushed the real estate industry in unforeseen ways -- fundamentally altering how it behaves and its understanding of markets. It is changing the way brokers market property, how brokerages charge clients, how managers budget improvements, how tenants decide where to locate, how local governments are approaching development and transportation issues, how consumers decide where to spend money, how logistics firms manage their distribution centers, how landlords calculate their expense pass-throughs, and how lenders fund construction projects and acquisitions. It has investors adjusting their acquisition criteria and has asset managers recalculating cash flows. And these are just a few of the ways. CoStar Advisor surveyed readers across the country this week to gauge if and how high gas and diesel prices are impacting commercial real estate. As a measure of how pervasive the topic is in their typical workday, we received more responses to the question than to any other we have previously asked. The impact has been both practical and psychological -- showing up across the board. It's most obvious at the micro level where everyone has felt the pinch of $1 more a gallon over last summer's prices. It's commonplace now for the cost of a tank of gas to top $100 and it's not uncommon to go through that every two or three days. "Gas prices are killing me," said Charles Paxton, president of Carolina Homes & Land Realty in Harrisburg, NC. "I spent $600 last month and barely left town. I must travel to see the site and meet the clients but I am now forced to transact as much as possible over the phone. I am now telling buyers to pay me an advance towards earned commission if they want more than I can provide over the phone. This is not going over well but I can't continue to go broke on a sale that may never take place."
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But the high gas prices are also menacing at the macroeconomics level. "Oil prices (more so than gas alone) are impacting world economies and financial markets in dramatic fashion," said Carl Trotto, vice president of acquisitions for Esplanade Capital in New York. Trotto joined the company this year from Cushman & Wakefield where as a capital markets professional he structured and executed commercial real estate transactions. Energy prices "are exacerbating the present concern in the financial markets," Trotto explained. "This negatively impacts real estate valuations as it does valuations of all assets. In fact, the impact on real estate is arguably more dire than for other asset classes because of the leverage (and tax incentive of leverage) associated with real estate finance. "At the microeconomic level, oil prices (and higher inflation to be sure) are causing firms in a variety of industries to forestall expansion and/or retrench existing operations. Both of these impacts have obvious repercussions for the buying, selling, and leasing of real estate," Trotto added. In short, said Edward L. Miller, managing director and principal of Colliers Arnold Commercial Real Estate Services in Tampa, FL, "high gas prices suppress the optimism essential to investor confidence."
Geographically UndesirableOn the housing front, the rising cost of gas is wiping out any of the savings that homeowners found in the outlying areas of cities across the country. "Gas prices have killed the tertiary new home market as the "drive until you qualify" buyer is no longer in existence," said Dave Miller, vice president/national accounts and commercial sales manager for Chicago Title in Phoenix. "As the price of gas continues to rise the affordability differential of living in suburbs and bedroom communities is diminished," said Michael Beach a director at Captec Financial Group in Southern California. "We see population growth stronger nearer the city center and, if prices continue to rise, a likely drastic reduction in urban sprawl. Likewise, we expect reduced traffic at regional malls and outlet centers in markets where there are alternative places to shop." "It's viewed as a big negative for the outlying markets here in Phoenix," said Jason Weber, director of acquisition for Cole Cos., which is focused on land acquisition and commercial development. "Many of the areas that boomed two to three years ago are 40 to 50 miles from downtown Phoenix. The cost of gas will definitely negatively affect demand for housing in these areas, because the cost of people's commute has essentially doubled."
Journey to the CenterThe dynamic of gas price cost to distance is turning residential investors' attention toward closer in markets. "Savvy multifamily investors are looking for deals nearby -- or preferably next to -- bus stops or other public transit locales," said Alex J. Beachum with Income Property Organization in Bloomfield Hills, MI. "Their logic is that as prices continue to climb, more and more tenants will turn to this form of transportation to alleviate the burden of gas prices. And a complex with immediate access to such transportation will be alluring to these conservation-minded tenants." "From a land development and building perspective, the price of gas absolutely is affecting the market," said Richard MacDonough, vice president of Fraser Forbes Land Sales in McLean, VA. "I am seeing profound interest in core area development projects - inside the Beltway in both Baltimore and [Washington] DC. That is particularly the case with sites near Metro stations and major transit hubs where commuters can share transportation. "Denser sites close in create efficiencies for builders, reduce construction costs, allowing the developers to have a profitable deal but keeping home prices within reach of most buyers," MacDonough added. "A lot of our developer clients are creating new ways to reach out to this market, and I see government looking for ways to make projects like this work."
DensityWe heard from several others that municipalities across the country, which have seemingly dragged their feet on addressing development and transportation issues, are now being forced into action. "In our town (Fairfield, CT), the Plan and Zoning Commission is already looking at implementing aspects of the model "smart code" (higher densities and pedestrian-friendly mandates). This would have never happened a few years ago as NIMBY or "just say no to development" activists would have shot it down," said Stuart Baldwin, principal of American Capital LLC. "The long-range effect will favor close-in redevelopment, particularly around existing or planned public transportation," said Mark Squires, a realtor with Coldwell Banker Commercial NRT in Maitland, FL. "Transit Oriented Development (TOD) is big and getting bigger. TOD needs the various cities and counties to loosen their development codes in the areas of height, density, FAR, etc., and in many cases we're seeing that here in Florida despite some citizen opposition. "The trend here is really against massive outlying sprawl and new subdivisions, strip centers, etc., and toward close-in population concentrations, where people can work, play, live, shop, etc. in a small, dense area, but with required parks and green space. This trend, of course, has been existing for several years, but the high gas prices are accelerating it," Squires added.
End of Drive BysEven the broker tenant relationship is changing as both sides deal with the rising price of commuting across metropolitan areas and as they alter their expectations and needs. "In my daily routine, the price of gas only comes up when discussing properties to visit that require a drive to get to. I find investors are using brokers, attorneys, accountants, etc. to gather more information before making a site visit. I have even had potential buyers make offers without visiting the property," said Stephen Fuerst of Centrus Group Inc. in Akron, OH. From a brokerage standpoint, Graig Griffin, principal of Coldwell Banker Commercial KGA in St. George, UT, is seeing some definite trends. "Agents are being much more judicious about showing property in peripheral areas, doing a better job of prequalification before getting in the car with clients. This is even more true of residential agents and most will not tour a buyer without an exclusive representation agreement," Griffin said. "Agents are carpooling more for market tours and site visits. In my office, it is now common to here "I am headed to X area - does anyone else need to head that direction?"
PositioningGriffin also is seeing a host of changes from the tenant. "Market positioning is becoming much more crucial with delivery-based firms exploring traffic modeling/drive time analysis," he said. "As typical, businesses are willing to pay more for locations that service their client base better, shoring up in-fill prices for land and occupancy for space. And companies with a high cost of product or raw material transportation are seeking rail-served property more often." Brian S. Brennan, director, real estate acquisitions for Allianz of America in Westport, CT, is seeing the same phenomenon. "When comparing rail cost versus truck cost, the distance traveled by the goods via rail is shrinking for the rail option to be preferable to truck," Brennan said. "The rule of thumb used to be 400 miles or longer made rail a viable option. Now with the cost of diesel, the cost competitive distance for rail may be as low as 200 miles." It is also impacting where overseas goods are unloaded, Brennan noted. "Container ships now take "all water" routes to the East Coast of the U.S. rather than offload on the West Coast and truck the containers on land," he said. "Eastern seaports are seeing container volume rise while Western seaports are seeing volume shrink." Hence industrial tenants, particularly logistics firms, are rethinking where their distribution points should be. "Super regional distribution centers (800,000 square feet to 2 million square feet) built in rural locations are now less cost effective and some logistics are being re-engineered to put product in smaller buildings closer to population centers, Brennan said. Mark Killough, senior vice president of Hartz Mountain Industries Inc. in Secaucus, NJ, noted the same trend. "I believe that if gas prices stay at the current level, companies will have to reexamine their logistics models," Killough said "The large distribution center servicing a 500-mile radius may not be as efficient with the increase in trucking costs. It may warrant having smaller and more distribution centers to service the same territory." "The price of gas affects the distribution businesses and the contracting service businesses," said Michael E. Nelson, senior associate of CB Richard Ellis in Stamford, CT. "The distribution businesses located in large warehouses with multiple loading docks in heavy industrial zones usually cannot make a move to improve their location closer to the markets they serve. However, the smaller contractors, like cablevision trucks or home audio businesses that need to reach into large residential zones can move closer to these markets if they watch the opportunities closely. Up until now it hasn't been a factor, but it may surface in the next two quarters."
Passing on CostsAnother area where the price of gas affects real estate decisions is related to raw material prices that are oil-based derivatives, CoStar Advisor readers told us. "Prices for asphalt roof tiles and other asphalt applications in construction projects are rising at an unbelievable pace," said Tyson Strauser an investment analyst with Longhorn Capital in Dallas. "Though concrete prices have also risen, asphalt is up nearly 50% since January because it is an oil-based product." "Construction costs are skyrocketing," said Jennifer Britt Starbuck, an asset manager for Pitcairn Properties in Jenkintown, PA. "We've received notices from suppliers for steel, drywall, carpeting indicating 10% to 30% price increases in the next 90 days. Some of this is the result of transportation cost increases (everything is shipped by truck). Some is the result of increased manufacturing costs for petroleum-based products (carpeting). Another example of the latter is asphalt - we've been getting pricing in for asphalt repairs at nearly 40% higher than the same scope last year." The result of these increased construction costs is that landlords will see lower returns, Starbuck added. "A typical standard tenant build-out is generally the landlord's responsibility in most markets, regardless of cost. In many of the markets we operate in, spaces that could be retrofitted for $25.00/square foot last year are running $30/square foot this year. And projects that can be deferred (like sealcoating or asphalt repairs) may be pushed off in the hopes of increased supply in 2009 driving prices back down." It is also driving up building expenses. "The issue that is affecting our decisions is not gas but heating oil," said Neal Lorberbaum, principal of Peryn Realty LLC in Westport, CT. "The price of oil has almost doubled in the last 12 months. Since it is a large component of the operating expense here in the Northeast, the increase in cost is amplified when considering the value of an asset depending on the prevailing cap rates."
Smaller LoansThe rising property costs are not going un-noticed by lenders either. "A few months ago I would have been able to get larger loan amounts and higher loan to values for restaurant startups," said Daniel Cabrera, senior account executive of Empire Commercial Funding Group LLC in Albuquerque, NM. "Now besides both of those being lower today, more collateral is required to back the loan because of higher default rates. All these are directly related to the cost of fuel." "Lenders have stated that as a direct result of gas prices being higher, they are experiencing more defaults," Cabrera said. "For the obvious reasons: Revenues are down and costs are up. The cost of supplies i.e. food etc to make the meals is higher. Prices for meals have to be raised. However the amount of disposable income of the consumer is lower because they're spending more of it on fuel etc. Additionally costs such as getting to the restaurant have to be factored in now when before it would have been ignored. Therefore the restaurateurs are being hit on both sides." "I was discussing lending criteria as it relates to property value and gas prices," Corey Schwartz, president of Serinova Financial LLC in Phoenix said. "We concluded that the cost of gas is probably not coming down and that property values in the outlying areas of the city are going to be adversely impacted by the cost of gas. Our lending criteria have been adjusted to reflect this."
To see how gas prices have hurt retailers, see Nearly 4,500 Store Closings ... And Counting ..., by Sasha M. Pardy, senior news editor.
For more informaion see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com

Wednesday, July 9, 2008

CB Richard Ellis Buys Enclave of $37.3 Million

Behringer Harvard REIT I Inc. sold the Enclave on the Lake office building to CB Richard Ellis Realty Trust for $37.3 million.
The fully leased, 171,000-square-foot office building is located at 1255 Enclave Parkway in Houston's Energy Corridor area. The six-story facility is occupied by SBM Atlantia Inc., a subsidiary of SBM Offshore Inc.
The building was constructed in 1999 on a 6.7-acre wooded site in The Enclave Office Park, an 878-acre development consisting of Class A office buildings in a campus setting.
The Behringer Harvard REIT acquired a 36 percent interest in Enclave on the Lake along with tenants-in-common investors in April 2004. The REIT reports an overall yield during the holding period of 80 percent and an annualized cash-on-cash return of approximately 19 percent that represents a leveraged internal rate of return of more than 17 percent.
Following the disposition of Enclave on the Lake, the Dallas-based Behringer Harvard REIT I Inc. portfolio owns interests in 73 properties with approximately 25 million square feet.
CB Richard Ellis Realty Trust is sponsored by Los Angeles-based CB Richard Ellis Investors, an indirect wholly owned subsidiary of CB Richard Ellis Group Inc.
Jeff Torto, senior director of acquisitions for CBRE Investors, said Enclave on the Lake was an attractive investment because vacancy rates in Houston and the Energy Corridor are at record lows and rental rates are steady.
"The Houston office market is considered a 'Blue Chip' market by CBRE Investors' Research Group," Torto said. "While the national economy has decelerated, Houston continues to expand and is significantly outperforming the nation as a whole." for more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com

Starbuucks Cutting back hundreds of Stores

The announcement that coffee giant Starbucks plans to close 600 locations--500 more than its CEO Howard Schultz had talked about earlier this year--is unwelcome news for frappuccino lovers, but it’s likely to upset real estate owners and investors even more.
For years, Starbucks has served as a mini-anchor for smaller strip centers. The presence of a Starbucks could turn an otherwise ordinary center into a preferred investment vehicle for many buyers because of the coffee giant's ability to pay premium rents and at the same time provide heavy foot traffic. As recently as 2007, Starbucks-anchored properties garnered cap rates up to 100 basis points below the national average. Now that the Seattle-based chain is grappling with problems, however, it might begin to lose ground to rival Dunkin’ Donuts as the go-to anchor for multi-tenanted strips.
“At this point, Starbucks has not published a list of the stores they are closing, they will just let the landlords know 30 days in advance, so you really don’t know whether your Starbucks is closing or not,” says Bernie Haddigan, national director of the retail group with the national brokerage firm Marcus & Millichap Real Estate Investment Services. “And if you were to lose a Starbucks, it would be significant, because they pay premium rents in most markets and it’s going to be hard to replace those rents.”
The chain’s July 1 announcement that it plans to close 600 U.S. stores came after a disappointing second quarter. For the three months ended March 30, Starbucks reported a 28 percent decrease in net earnings, to $108.7 million, and what it described as a “mid single-digit decline in comparable store sales.” The weak results were due to a combination of a turbulent economic climate and an overly aggressive expansion strategy, according to Wall Street analysts, most of whom lauded the store closure move.Currently, Starbucks’ biggest competitor is Starbucks itself, says Morningstar analyst John Owens, who notes that new locations in close proximity to existing stores cannibalized sales.
The 600 closings represent only 8 percent of Starbucks’ 7,257 company-operated U.S. stores and 5 percent of its total 11,434 U.S. stores, Owens adds. The closings will take place through the remainder of fiscal year 2008 and first half of fiscal 2009. In addition, the chain will limit its new store openings in the U.S. to fewer than 200 this year. Previously, it planned to open about 250 new locations a year through 2011.
But the bitter medicine philosophy will prove of little comfort to owners who will have to replace Starbucks’ spaces, according to Haddigan. He notes that the chain often pays 30 percent to 40 percent above the market average in net rent. To find another anchor willing to pay the same amount in the current real estate market would prove difficult. That means it will be hard for an owner to sell a center that relies on a Starbucks as well, since lenders could prove unwilling to finance a transaction on a property that might be about to lose its anchor tenant.
“It’s not like my phone has been ringing off the hook with people saying they don’t want to buy those properties, but it’s not good, it jeopardizes the credit of the deal and it erodes confidence in the small shop strip centers,” says Chad Firsel, executive vice president with NAI Hiffman, an Oakbrook Terrace, Ill.-based commercial real estate services firm.
Firsel estimates that in view of the store closure announcement, cap rates on Starbucks-anchored centers will rise anywhere from 75 basis points to 100 basis points, to a range of 7.25 percent to 7.5 percent. That comes at a time when investment sales volume for centers in the $1.5 million to $5 million range is already 50 percent down compared to last year, according to Haddigan. “In the short run, if you’ve got a marginal Starbucks, it’s probably not going to trade,” he notes.
Haddigan adds that for the time being, he would stick with Dunkin’ Donuts-anchored properties. The Canton, Mass.-based chain has proven that it can withstand economic downturns with its more affordable selection of coffee and pastries, plus it pays rents that are more in-line with the market average, making it easier to replace if a given location does close.
At the end of 2007, Dunkin’ Donuts operated 5,769 franchises in the U.S. and was planning an aggressive expansion into Western states, including Indiana, Arizona and Texas.
“The fact that Dunkin’ is moving west of the Mississippi is going to have a much greater impact on Starbucks’ future success,” says Keith Politte, senior vice president with the corporate solutions division of Colliers International, a Boston-based real estate services firm. “I think you will see more of an impact a couple of years from now.”
--Elaine Misonzhnik

For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com

Tuesday, July 8, 2008

Glazier Foods Co. has sold its 286,000 sq. ft. headquarters

Glazier Foods Co. has sold its 286,000 sq. ft. headquarters and distribution center in Houston to an investment group that plans a $14 million expansion to the property. As part of the deal, the food service distributor has leased the entire space back from the new owner. The purchase price was undisclosed.Glazier Foods was founded in Houston in 1936 and is a family-owned distributor. The buyer, GSL Welcome Group, is a Houston-based real estate development company with a portfolio of more than 75 single-tenant properties in the Houston area. Glazier’s new landlord closed the purchase through its GSL Fund 21 GF Sub E.Construction has already begun to add 160,000 sq. ft. to the distribution center over the next year, which will bring the property’s overall size to 446,000 sq. ft. and increase the size of Glazier Food’s freezer and dry storage areas. GE Capital provided financing for the acquisition and funding for the $14 million expansion.Glazier Foods retained Yancey-Hausman Commercial Real Estate Services to market its 33-acre distribution facility in the third quarter last year. Jackie Ritchie, a senior associate at Yancey-Hausman, and Pat Pollan, senior vice president at the firm, conducted a national bid process that attracted offers from several industrial REITs, according to the brokers. “This was a great opportunity for GSL to acquire a high-quality asset in an excellent location with a long-term, stable cash flow and excellent prospects for appreciation,” Pollan says.Yancey-Hausman is a full-service commercial real estate company providing services for office, industrial, retail and land projects. Established in 1971, the firm currently has more than 60 employees in Houston and Austin. For more infromation see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com

Monday, July 7, 2008

Shell Oil to sell 1935 Bellaire Technology Site

Shell Oil Co.'s decision to shutter its 70-year-old Bellaire Technology Center and shift the jobs to an expanded campus in West Houston will open up a prime piece of Inner-Loop real estate.
The Bellaire Technology Center land, which is made up of three individual parcels located at 3737 Bellaire Blvd. between Stella Link and Buffalo Speedway, will be marketed for redevelopment once Shell demolishes the structures on the site and prepares it for sale, which could be as late as 2012.
Shell will relocate 480 Bellaire employees to its Westhollow Technology Center near Westheimer and State Highway 6 over the next two years, with the final consolidation scheduled for completion by 2011. Another 170 Bellaire employees will move to the company's Woodcreek site north of Interstate 10 near Beltway 8.
Shell owns 5.5 acres of the 9.7-acre Bellaire site, and leases the rest from the Perrin White family. White, a Houston real estate investor, declined to comment on the land.
Shell started operating at the site in the late 1930s, and over the years constructed eight buildings with a total of 315,000 square feet of space.
Even with two separate owners, the three parcels are expected to be jointly marketed for redevelopment once the land is cleared, according to Jeri Ballard, director of corporate real estate for Shell.
The campus is across the street from a residential neighborhood, and is not far from the Texas Medical Center. Ballard does not know what the cleared land might be worth.
"The value will be totally driven by the use," she says.
And the future use will be dictated by the City of Southside Place, which, unlike Houston, has zoning regulations.
City leaders will have a keen interest in future development as they seek to regain economic losses from Shell's departure. The municipality will experience a dip in property tax revenue after the relocation, and businesses will no longer have access to 650 Shell employees who shop and eat in the area.
"I think commercial (development) is certainly what Southside Place wants there," Ballard says.
David Moss, city manager of Southside Place, agrees, saying that once Shell moves out, "property taxes will be the key issue."
He says the campus and surrounding area has been designated for a variety of uses, including office and professional, research and development, special services and medium-density residential.
The city has not yet talked in depth with Shell about the transition, but, Moss says, "we would like to do that. We have had a great relationship with them over the years."
Out west
Shell's 480 Bellaire employees will join the existing 1,300 employees at the Westhollow Technology Center, which will be renamed Shell Technology Center-Americas.
The project will move the operations of Shell Exploration and Production Technology from Bellaire to Westhollow, which opened in 1975.
Shell said in 2006 that it planned to close the Bellaire facility, but the move to Westhollow was just announced last week.
The project will bring together the upstream exploration and production research of the Bellaire Technology Center with the downstream research -- refining, manufacturing, fuel blending -- done at Westhollow.
Westhollow is located on 200 acres with 43 buildings encompassing more than 1 million square feet of laboratory and office space.
The modernization project will add 150,000 square feet of new space spread out among a laboratory building, a multipurpose facility and a shipping and receiving building. for more information see www.houstonrealtyadavisors.com or www.houstonrealtyadvisor.net


THE WOODLANDS, TEXAS — Wachovia Bank N.A. has provided $23.53 million in construction financing for Sierra Pines, a 180,000-square-foot, speculative office building located in The Woodlands. Situated on 35.5 acres at 1601 Sawdust Rd., the Class A office building is scheduled for completion in January 2009. It is the first phase of a three-building, 540,000-square-foot office development. Holliday Fenoglio Fowler’s Matt Kafka and Adam Jackson originated the loan on behalf of Stream Realty Partners LP. The property is leasing at a rate of $18 per square foot triple-net. For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com

Thursday, July 3, 2008

Glazier Sells Headquarters

Glazier Foods Sells Heaquarters Jun 26, 2008 - The Houston Business Journal
Glazier Foods Co. has sold its 286,000-square-foot, Northwest Houston headquarters and distribution facility to GSL Welcome Group LLC.
Financial terms of the deal were not disclosed.
Glazier, a Houston-based food service distributor, will continue to lease the 33-acre facility from GSL and will be responsible for improvement and maintenance of the facility.
Houston-based GSL, a real estate development company, will fund a $14 million expansion to the property in addition to the purchase price of the building. The 160,000-square-foot expansion increases the facility's freezer and dry storage areas.
Design for the addition is under way and construction is expected to be completed within 12 months.
The broker for the deal was Yancey-Hausman Commercial Real Estate Services. Fro more information see: www.houstonrealtyadvisors.net or www.houstonrealtyadvisors.com or www.edayres.com