Turnberry Ltd. confirmed this week that it no longer plans to build a 34-story luxury condo tower by the Galleria Mall that had been in the works for more than three years.
The 184 proposed condo units, priced from $1 million to more than $3.5 million, were to be located west of Post Oak Boulevard, between Hidalgo and W. Alabama.
Buyers were notified of the developer’s decision last week, and have been refunded their deposits plus interest accrued on the money, according to Turnberry.
Jim Cohen, a vice president of sales for the prolific development firm, said in a statement released this week that the project was cancelled because the firm could not get a construction loan during the current financial crisis.
“With great reluctance we have decided to suspend development operations for Turnberry Tower, Residences at the Galleria,” Cohen said in the statement. “This is the first project Turnberry has had to discontinue in more than 40 years in the real estate development business.”
The Aventura, Fla.-based company has developed more than $7 billion in commercial and residential property, including 20 million square feet of retail space, 7,000 apartments and condo units, 1.5 million square feet of office space and 2,000 hotel and resort rooms.
Turnberry’s splashy marketing effort in Houston began in September 2007 with the unveiling of a 12,000-square-foot, multimillion-dollar sales center/model home near the development site.
The sales center closed last week, and the developer has not decided what it will do with the property. For more information see www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Tuesday, October 28, 2008
Thursday, October 23, 2008
KBC Signs 30,000-SF Prelease at Energy Crossing
KBC Advanced Technologies Inc., a process engineering, consulting and software group, signed a lease for 30,000 square feet at 15021 Katy Freeway in Houston. The six-story, 480,000-spuare-foot office property at Energy Crossing I and II, broke ground in early 2008 and will be completed in February 2009. KBC is the first tenant to sign a lease with Opus West, the landlord. The tenant is expected to move into the space in March upon completion of the property. John Pruitt and Dena Wren of CB Richard Ellis represented the landlord. Anthony Squillante of Jackson Cooksey represented the tenant. for more information see: www.houstonrealtyadvisors.com or www.houstonrea;tyadvisors.net or www.edayres.com
Tuesday, October 21, 2008
Commercial Real Estate Sales Slump Spans Globe
The dearth of transactions that has daunted U.S. commercial real estate investors for 14 months has spread overseas, but observers suggest that measures to restore liquidity could help some markets to avoid the degree of paralysis that lingers in North America.
Article Tools
Transaction volume worldwide has contracted across property types and totaled $388 billion year-to-date through August, down 57% from the same period in 2007, according to New York-based researcher Real Capital Analytics. That pace is still slowing, with third-quarter sales expected to show an even steeper decline of 68% from the year-ago quarter.
“The credit crunch that has been impeding deal flow in the U.S. and Europe is now spreading throughout Asia and erupting into a full-blown financial crisis in the West,” researchers contend in the September/October issue of Global Capital Trends, published by New York-based researcher Real Capital Analytics.
But if the credit crunch is to blame for declining sales numbers, then recent measures taken by governments around the globe may help to slow the downward spiral of dwindling transactions by boosting liquidity. This month the United Kingdom announced it will invest £37 billion in its largest banks, while the United States agreed to infuse its own banking system with $250 billion and expanded government backing of deposits through the FDIC. The Bank of Japan took steps to bolster Japanese stocks and finances, and 27 states in the European Union agreed to work together in supporting their own banks.
Those coordinated responses should help increase liquidity, but investors remain cautious about declining economic indicators, according to Global Market Perspective, a report published Oct. 17 by real estate service provider Jones Lang LaSalle. Even in markets where property values experience declines, however, more readily available credit will increase the number of investors able to bid on properties as more property owners become distressed and are forced to sell.
“For every region of the world, it all hinges on whether debt capital comes available,” says Keven Lindemann, director of the real estate group at SNL Financial in Charlottesville, Va.
Making deals
So far, most overseas markets have maintained transaction volume better than the U.S. Through August, year-to-date commercial real estate sales in the U.S. reached $105.5 billion, down 77% from the previous year and down 80% since the crisis began, Real Capital Analytics reported.
By contrast Europe, the Middle East and Africa collectively had $152.4 billion in commercial real estate sales this year through August, down 46% from a year earlier. The U.K.’s $37.6 billion in sales since the beginning of the year were down 55% from a year ago.
While it’s too early to show up in sales data, the fourth quarter may bring an increase in transaction volume in Europe and the U.K., says Earl Webb, CEO of Capital Markets at Chicago-based Jones Lang LaSalle. Based on conversations with brokers and investors in Europe, Webb says the gap between bids and asking prices in Europe is narrowing and more sales are occurring as some banks as investors liquidate real estate assets.
“Investors there who need liquidity tend to get it by selling assets into the market at market-clearing prices faster than they do here,” Webb says. “In the U.K. for example, property trades are already taking place at fairly considerable discounts over where pricing was a year ago.” Indeed, buyers in August could expect an average yield of 6.3% for office, industrial and retail properties in the region, up from 5.8% a year earlier, according to Real Capital Analytics.
The only major commercial real estate market to see a decline approaching the precipitous drop in volume experienced in the U.S. has been Australia/New Zealand, where sales of $6.7 billion year-to-date mark a 74% decline from the same period last year. As a whole, the Asia-Pacific region, including Australia and New Zealand, racked up $113.3 billion in commercial real estate sales this year through August, down only 18% from the year-ago period.
Asia retains liquidity
Asia’s transaction volume has plummeted since midyear and volume for sales in the region will be down 68% in the third quarter from a year ago, Real Capital Analytics estimates. Asia enjoyed a brief surge in acquisitions earlier this year when investors sought refuge in markets they hoped would escape the illiquidity crisis plaguing the West. Japan even posted a 19% gain with its year-to-date transaction volume of $28.9 billion through August, although that number masks a more recent decline that is expected to show up as a 41% drop in sales in third-quarter sales from a year ago.
Some investors clearly expect to see buying opportunities in Asia, and those acquisitions could usher in renewed transaction volume by establishing market prices, according to SNL Financial’s Lindemann. Merrill Lynch has formed a $2.65 billion investment fund to buy Asian real estate, for example, and LaSalle Investment Management has launched a $3 billion opportunity fund focused on the same region. “The idea is that there are going to be some distressed sellers out there,” he says.
Transaction volume in Asia is down in part because investors the world over have grown more cautious in reaction to this year’s bank failures and bailouts, according to Lee Menifee, director of global strategy at CB Richard Ellis Investors in Los Angeles. Less debt is available in the region than in previous years, too, because the largely U.S.-based lenders who provided mezzanine loans and other secondary leverage have ceased to offer new loans.
Yet there is good reason for investors to consider commercial real estate acquisitions in China, Japan and other major Asian markets, Menifee says. Japan’s domestic banks continue to offer mortgage financing at 65% loan-to-value ratios for core assets in that country. The base interest rate in Japan is an incredibly low 0.5%.
China has lowered its official lending rate by 80 basis points to an attractive 6.92% and could easily boost liquidity if needed by easing restrictions on the use of foreign capital in real estate acquisitions. In the larger Asian markets, at least, the sales slump may be more transient than it has been in the West. “Asia is certainly not immune from the credit crisis,” Menifee says, “but it’s relatively less impacted.” For more information see www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Article Tools
Transaction volume worldwide has contracted across property types and totaled $388 billion year-to-date through August, down 57% from the same period in 2007, according to New York-based researcher Real Capital Analytics. That pace is still slowing, with third-quarter sales expected to show an even steeper decline of 68% from the year-ago quarter.
“The credit crunch that has been impeding deal flow in the U.S. and Europe is now spreading throughout Asia and erupting into a full-blown financial crisis in the West,” researchers contend in the September/October issue of Global Capital Trends, published by New York-based researcher Real Capital Analytics.
But if the credit crunch is to blame for declining sales numbers, then recent measures taken by governments around the globe may help to slow the downward spiral of dwindling transactions by boosting liquidity. This month the United Kingdom announced it will invest £37 billion in its largest banks, while the United States agreed to infuse its own banking system with $250 billion and expanded government backing of deposits through the FDIC. The Bank of Japan took steps to bolster Japanese stocks and finances, and 27 states in the European Union agreed to work together in supporting their own banks.
Those coordinated responses should help increase liquidity, but investors remain cautious about declining economic indicators, according to Global Market Perspective, a report published Oct. 17 by real estate service provider Jones Lang LaSalle. Even in markets where property values experience declines, however, more readily available credit will increase the number of investors able to bid on properties as more property owners become distressed and are forced to sell.
“For every region of the world, it all hinges on whether debt capital comes available,” says Keven Lindemann, director of the real estate group at SNL Financial in Charlottesville, Va.
Making deals
So far, most overseas markets have maintained transaction volume better than the U.S. Through August, year-to-date commercial real estate sales in the U.S. reached $105.5 billion, down 77% from the previous year and down 80% since the crisis began, Real Capital Analytics reported.
By contrast Europe, the Middle East and Africa collectively had $152.4 billion in commercial real estate sales this year through August, down 46% from a year earlier. The U.K.’s $37.6 billion in sales since the beginning of the year were down 55% from a year ago.
While it’s too early to show up in sales data, the fourth quarter may bring an increase in transaction volume in Europe and the U.K., says Earl Webb, CEO of Capital Markets at Chicago-based Jones Lang LaSalle. Based on conversations with brokers and investors in Europe, Webb says the gap between bids and asking prices in Europe is narrowing and more sales are occurring as some banks as investors liquidate real estate assets.
“Investors there who need liquidity tend to get it by selling assets into the market at market-clearing prices faster than they do here,” Webb says. “In the U.K. for example, property trades are already taking place at fairly considerable discounts over where pricing was a year ago.” Indeed, buyers in August could expect an average yield of 6.3% for office, industrial and retail properties in the region, up from 5.8% a year earlier, according to Real Capital Analytics.
The only major commercial real estate market to see a decline approaching the precipitous drop in volume experienced in the U.S. has been Australia/New Zealand, where sales of $6.7 billion year-to-date mark a 74% decline from the same period last year. As a whole, the Asia-Pacific region, including Australia and New Zealand, racked up $113.3 billion in commercial real estate sales this year through August, down only 18% from the year-ago period.
Asia retains liquidity
Asia’s transaction volume has plummeted since midyear and volume for sales in the region will be down 68% in the third quarter from a year ago, Real Capital Analytics estimates. Asia enjoyed a brief surge in acquisitions earlier this year when investors sought refuge in markets they hoped would escape the illiquidity crisis plaguing the West. Japan even posted a 19% gain with its year-to-date transaction volume of $28.9 billion through August, although that number masks a more recent decline that is expected to show up as a 41% drop in sales in third-quarter sales from a year ago.
Some investors clearly expect to see buying opportunities in Asia, and those acquisitions could usher in renewed transaction volume by establishing market prices, according to SNL Financial’s Lindemann. Merrill Lynch has formed a $2.65 billion investment fund to buy Asian real estate, for example, and LaSalle Investment Management has launched a $3 billion opportunity fund focused on the same region. “The idea is that there are going to be some distressed sellers out there,” he says.
Transaction volume in Asia is down in part because investors the world over have grown more cautious in reaction to this year’s bank failures and bailouts, according to Lee Menifee, director of global strategy at CB Richard Ellis Investors in Los Angeles. Less debt is available in the region than in previous years, too, because the largely U.S.-based lenders who provided mezzanine loans and other secondary leverage have ceased to offer new loans.
Yet there is good reason for investors to consider commercial real estate acquisitions in China, Japan and other major Asian markets, Menifee says. Japan’s domestic banks continue to offer mortgage financing at 65% loan-to-value ratios for core assets in that country. The base interest rate in Japan is an incredibly low 0.5%.
China has lowered its official lending rate by 80 basis points to an attractive 6.92% and could easily boost liquidity if needed by easing restrictions on the use of foreign capital in real estate acquisitions. In the larger Asian markets, at least, the sales slump may be more transient than it has been in the West. “Asia is certainly not immune from the credit crisis,” Menifee says, “but it’s relatively less impacted.” For more information see www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Commercial Real Estate Sales Slump Spans Globe
The dearth of transactions that has daunted U.S. commercial real estate investors for 14 months has spread overseas, but observers suggest that measures to restore liquidity could help some markets to avoid the degree of paralysis that lingers in North America.
Transaction volume worldwide has contracted across property types and totaled $388 billion year-to-date through August, down 57% from the same period in 2007, according to New York-based researcher Real Capital Analytics. That pace is still slowing, with third-quarter sales expected to show an even steeper decline of 68% from the year-ago quarter.
“The credit crunch that has been impeding deal flow in the U.S. and Europe is now spreading throughout Asia and erupting into a full-blown financial crisis in the West,” researchers contend in the September/October issue of Global Capital Trends, published by New York-based researcher Real Capital Analytics.
But if the credit crunch is to blame for declining sales numbers, then recent measures taken by governments around the globe may help to slow the downward spiral of dwindling transactions by boosting liquidity. This month the United Kingdom announced it will invest £37 billion in its largest banks, while the United States agreed to infuse its own banking system with $250 billion and expanded government backing of deposits through the FDIC. The Bank of Japan took steps to bolster Japanese stocks and finances, and 27 states in the European Union agreed to work together in supporting their own banks.
Those coordinated responses should help increase liquidity, but investors remain cautious about declining economic indicators, according to Global Market Perspective, a report published Oct. 17 by real estate service provider Jones Lang LaSalle. Even in markets where property values experience declines, however, more readily available credit will increase the number of investors able to bid on properties as more property owners become distressed and are forced to sell.
“For every region of the world, it all hinges on whether debt capital comes available,” says Keven Lindemann, director of the real estate group at SNL Financial in Charlottesville, Va.
Making deals
So far, most overseas markets have maintained transaction volume better than the U.S. Through August, year-to-date commercial real estate sales in the U.S. reached $105.5 billion, down 77% from the previous year and down 80% since the crisis began, Real Capital Analytics reported.
By contrast Europe, the Middle East and Africa collectively had $152.4 billion in commercial real estate sales this year through August, down 46% from a year earlier. The U.K.’s $37.6 billion in sales since the beginning of the year were down 55% from a year ago.
While it’s too early to show up in sales data, the fourth quarter may bring an increase in transaction volume in Europe and the U.K., says Earl Webb, CEO of Capital Markets at Chicago-based Jones Lang LaSalle. Based on conversations with brokers and investors in Europe, Webb says the gap between bids and asking prices in Europe is narrowing and more sales are occurring as some banks as investors liquidate real estate assets.
“Investors there who need liquidity tend to get it by selling assets into the market at market-clearing prices faster than they do here,” Webb says. “In the U.K. for example, property trades are already taking place at fairly considerable discounts over where pricing was a year ago.” Indeed, buyers in August could expect an average yield of 6.3% for office, industrial and retail properties in the region, up from 5.8% a year earlier, according to Real Capital Analytics.
The only major commercial real estate market to see a decline approaching the precipitous drop in volume experienced in the U.S. has been Australia/New Zealand, where sales of $6.7 billion year-to-date mark a 74% decline from the same period last year. As a whole, the Asia-Pacific region, including Australia and New Zealand, racked up $113.3 billion in commercial real estate sales this year through August, down only 18% from the year-ago period.
Asia retains liquidity
Asia’s transaction volume has plummeted since midyear and volume for sales in the region will be down 68% in the third quarter from a year ago, Real Capital Analytics estimates. Asia enjoyed a brief surge in acquisitions earlier this year when investors sought refuge in markets they hoped would escape the illiquidity crisis plaguing the West. Japan even posted a 19% gain with its year-to-date transaction volume of $28.9 billion through August, although that number masks a more recent decline that is expected to show up as a 41% drop in sales in third-quarter sales from a year ago.
Some investors clearly expect to see buying opportunities in Asia, and those acquisitions could usher in renewed transaction volume by establishing market prices, according to SNL Financial’s Lindemann. Merrill Lynch has formed a $2.65 billion investment fund to buy Asian real estate, for example, and LaSalle Investment Management has launched a $3 billion opportunity fund focused on the same region. “The idea is that there are going to be some distressed sellers out there,” he says.
Transaction volume in Asia is down in part because investors the world over have grown more cautious in reaction to this year’s bank failures and bailouts, according to Lee Menifee, director of global strategy at CB Richard Ellis Investors in Los Angeles. Less debt is available in the region than in previous years, too, because the largely U.S.-based lenders who provided mezzanine loans and other secondary leverage have ceased to offer new loans.
Yet there is good reason for investors to consider commercial real estate acquisitions in China, Japan and other major Asian markets, Menifee says. Japan’s domestic banks continue to offer mortgage financing at 65% loan-to-value ratios for core assets in that country. The base interest rate in Japan is an incredibly low 0.5%.
China has lowered its official lending rate by 80 basis points to an attractive 6.92% and could easily boost liquidity if needed by easing restrictions on the use of foreign capital in real estate acquisitions. In the larger Asian markets, at least, the sales slump may be more transient than it has been in the West. “Asia is certainly not immune from the credit crisis,” Menifee says, “but it’s relatively less impacted.”Oct 21, 2008 2:02 PM, By Matt Hudgins Commercial News
For more information see: www.hostonrealtyadvisors.com or www.houstonrealtyadvisors.net
Transaction volume worldwide has contracted across property types and totaled $388 billion year-to-date through August, down 57% from the same period in 2007, according to New York-based researcher Real Capital Analytics. That pace is still slowing, with third-quarter sales expected to show an even steeper decline of 68% from the year-ago quarter.
“The credit crunch that has been impeding deal flow in the U.S. and Europe is now spreading throughout Asia and erupting into a full-blown financial crisis in the West,” researchers contend in the September/October issue of Global Capital Trends, published by New York-based researcher Real Capital Analytics.
But if the credit crunch is to blame for declining sales numbers, then recent measures taken by governments around the globe may help to slow the downward spiral of dwindling transactions by boosting liquidity. This month the United Kingdom announced it will invest £37 billion in its largest banks, while the United States agreed to infuse its own banking system with $250 billion and expanded government backing of deposits through the FDIC. The Bank of Japan took steps to bolster Japanese stocks and finances, and 27 states in the European Union agreed to work together in supporting their own banks.
Those coordinated responses should help increase liquidity, but investors remain cautious about declining economic indicators, according to Global Market Perspective, a report published Oct. 17 by real estate service provider Jones Lang LaSalle. Even in markets where property values experience declines, however, more readily available credit will increase the number of investors able to bid on properties as more property owners become distressed and are forced to sell.
“For every region of the world, it all hinges on whether debt capital comes available,” says Keven Lindemann, director of the real estate group at SNL Financial in Charlottesville, Va.
Making deals
So far, most overseas markets have maintained transaction volume better than the U.S. Through August, year-to-date commercial real estate sales in the U.S. reached $105.5 billion, down 77% from the previous year and down 80% since the crisis began, Real Capital Analytics reported.
By contrast Europe, the Middle East and Africa collectively had $152.4 billion in commercial real estate sales this year through August, down 46% from a year earlier. The U.K.’s $37.6 billion in sales since the beginning of the year were down 55% from a year ago.
While it’s too early to show up in sales data, the fourth quarter may bring an increase in transaction volume in Europe and the U.K., says Earl Webb, CEO of Capital Markets at Chicago-based Jones Lang LaSalle. Based on conversations with brokers and investors in Europe, Webb says the gap between bids and asking prices in Europe is narrowing and more sales are occurring as some banks as investors liquidate real estate assets.
“Investors there who need liquidity tend to get it by selling assets into the market at market-clearing prices faster than they do here,” Webb says. “In the U.K. for example, property trades are already taking place at fairly considerable discounts over where pricing was a year ago.” Indeed, buyers in August could expect an average yield of 6.3% for office, industrial and retail properties in the region, up from 5.8% a year earlier, according to Real Capital Analytics.
The only major commercial real estate market to see a decline approaching the precipitous drop in volume experienced in the U.S. has been Australia/New Zealand, where sales of $6.7 billion year-to-date mark a 74% decline from the same period last year. As a whole, the Asia-Pacific region, including Australia and New Zealand, racked up $113.3 billion in commercial real estate sales this year through August, down only 18% from the year-ago period.
Asia retains liquidity
Asia’s transaction volume has plummeted since midyear and volume for sales in the region will be down 68% in the third quarter from a year ago, Real Capital Analytics estimates. Asia enjoyed a brief surge in acquisitions earlier this year when investors sought refuge in markets they hoped would escape the illiquidity crisis plaguing the West. Japan even posted a 19% gain with its year-to-date transaction volume of $28.9 billion through August, although that number masks a more recent decline that is expected to show up as a 41% drop in sales in third-quarter sales from a year ago.
Some investors clearly expect to see buying opportunities in Asia, and those acquisitions could usher in renewed transaction volume by establishing market prices, according to SNL Financial’s Lindemann. Merrill Lynch has formed a $2.65 billion investment fund to buy Asian real estate, for example, and LaSalle Investment Management has launched a $3 billion opportunity fund focused on the same region. “The idea is that there are going to be some distressed sellers out there,” he says.
Transaction volume in Asia is down in part because investors the world over have grown more cautious in reaction to this year’s bank failures and bailouts, according to Lee Menifee, director of global strategy at CB Richard Ellis Investors in Los Angeles. Less debt is available in the region than in previous years, too, because the largely U.S.-based lenders who provided mezzanine loans and other secondary leverage have ceased to offer new loans.
Yet there is good reason for investors to consider commercial real estate acquisitions in China, Japan and other major Asian markets, Menifee says. Japan’s domestic banks continue to offer mortgage financing at 65% loan-to-value ratios for core assets in that country. The base interest rate in Japan is an incredibly low 0.5%.
China has lowered its official lending rate by 80 basis points to an attractive 6.92% and could easily boost liquidity if needed by easing restrictions on the use of foreign capital in real estate acquisitions. In the larger Asian markets, at least, the sales slump may be more transient than it has been in the West. “Asia is certainly not immune from the credit crisis,” Menifee says, “but it’s relatively less impacted.”Oct 21, 2008 2:02 PM, By Matt Hudgins Commercial News
For more information see: www.hostonrealtyadvisors.com or www.houstonrealtyadvisors.net
Monday, October 20, 2008
New Research Center: Seed grant stimulates local collaboration at new research center
Rice University researchers working out of the planned Collaborative Research Center will get a $3 million jump-start with a seed grant from the John S. Dunn Research Foundation.
The Houston-based foundation awarded the funding to Rice University for the purpose of initiating collaborative research studies in biomedical science that have the potential for clinical applications.
One condition of the grant requires researchers to collaborate with scientists or physicians from other Texas Medical Center member institutions, which relates to the original mission of the center.
In announcing plans for the CRC in 2004, Rice officials made clear that their main goal was to facilitate joint research between Rice’s experts in biological sciences, engineering, computation, and the physical and mathematical sciences and Texas Medical Center physicians and scientists (see “Research hub unites Rice, TMC,” Nov. 5, 2004).
Charles Hall, president of the John S. Dunn Research Foundation, says his group’s top agenda has always been medical research.
“We get frustrated sometimes by not knowing who to give to for breast cancer research,” notes Hall, who also works as a tax attorney for Fulbright & Jaworski LLP.
“We’re very interested in getting a bang for our buck through collaborative work,” he says.
The late John Dunn Sr. established the Dunn Research Foundation in 1977 to support organizations and programs engaged in biomedical, educational and research programs, primarily in the greater Houston area. The foundation has awarded $1.5 million in various grants to Rice.
Richard E. Wainerdi, CEO of the Texas Medical Center, said in a written statement via e-mail that the TMC looks “forward to the development of some outstanding partnerships due to the foundation’s generosity.”
BRINGING RESEARCH OUT OF SILOS
Rice’s Collaborative Research Center is now slated to open in the summer of 2009, according to Kathleen Matthews, the Dean of Rice’s Weiss School of Natural Sciences.
The 10-story, 500,000-square-foot facility is currently under construction on the corner of University Boulevard and Main Street.
The first round of seed grants will be limited to cross-institutional teams of researchers within the CRC who have not previously worked together, and whose work shows potential for clinical use in the near future.
Matthews says the Dunn Foundation is helping Rice’s efforts by “bringing people together to do things that wouldn’t have happened if we stayed in our little silos.”
In terms of CRC occupants, the university’s entire department of bioengineering will be moving there once the building is ready, according to Matthews.
“They have been, from the very beginning of this idea, up front and very enthusiastic about being a part of this,” she says.
Also, some faculty from the university’s biochemistry and cell biology department will call the CRC home.
Rice is currently in ongoing discussions with other institutions, but Matthews could not say if any agreements had yet been finalized.
Initially, the CRC will hold seven to 10 labs per floor on eight of the 10 floors.
The grant from the Dunn Foundation, notes Matthews, will “catalyze new interactions by putting some resources out there for people who haven’t collaborated previously.”
Adds Matthews: “This gives them the resources to gather data, test an idea that they come up with together and take that to the next level.”For more information see www.Houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
The Houston-based foundation awarded the funding to Rice University for the purpose of initiating collaborative research studies in biomedical science that have the potential for clinical applications.
One condition of the grant requires researchers to collaborate with scientists or physicians from other Texas Medical Center member institutions, which relates to the original mission of the center.
In announcing plans for the CRC in 2004, Rice officials made clear that their main goal was to facilitate joint research between Rice’s experts in biological sciences, engineering, computation, and the physical and mathematical sciences and Texas Medical Center physicians and scientists (see “Research hub unites Rice, TMC,” Nov. 5, 2004).
Charles Hall, president of the John S. Dunn Research Foundation, says his group’s top agenda has always been medical research.
“We get frustrated sometimes by not knowing who to give to for breast cancer research,” notes Hall, who also works as a tax attorney for Fulbright & Jaworski LLP.
“We’re very interested in getting a bang for our buck through collaborative work,” he says.
The late John Dunn Sr. established the Dunn Research Foundation in 1977 to support organizations and programs engaged in biomedical, educational and research programs, primarily in the greater Houston area. The foundation has awarded $1.5 million in various grants to Rice.
Richard E. Wainerdi, CEO of the Texas Medical Center, said in a written statement via e-mail that the TMC looks “forward to the development of some outstanding partnerships due to the foundation’s generosity.”
BRINGING RESEARCH OUT OF SILOS
Rice’s Collaborative Research Center is now slated to open in the summer of 2009, according to Kathleen Matthews, the Dean of Rice’s Weiss School of Natural Sciences.
The 10-story, 500,000-square-foot facility is currently under construction on the corner of University Boulevard and Main Street.
The first round of seed grants will be limited to cross-institutional teams of researchers within the CRC who have not previously worked together, and whose work shows potential for clinical use in the near future.
Matthews says the Dunn Foundation is helping Rice’s efforts by “bringing people together to do things that wouldn’t have happened if we stayed in our little silos.”
In terms of CRC occupants, the university’s entire department of bioengineering will be moving there once the building is ready, according to Matthews.
“They have been, from the very beginning of this idea, up front and very enthusiastic about being a part of this,” she says.
Also, some faculty from the university’s biochemistry and cell biology department will call the CRC home.
Rice is currently in ongoing discussions with other institutions, but Matthews could not say if any agreements had yet been finalized.
Initially, the CRC will hold seven to 10 labs per floor on eight of the 10 floors.
The grant from the Dunn Foundation, notes Matthews, will “catalyze new interactions by putting some resources out there for people who haven’t collaborated previously.”
Adds Matthews: “This gives them the resources to gather data, test an idea that they come up with together and take that to the next level.”For more information see www.Houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
HCSS TO BUILD NEW 42,000-SQUARE-FOOT HEADQUARTERS
SUGAR LAND, TEXAS — Construction software company Heavy Construction System Specialists has announced plans to relocate its corporate offices from Houston to Sugar Land. The firm will construct a 42,000-square-foot facility on an 11.92-acre site at the corner of Alston Road and West Airport Boulevard. The building will house corporate offices, as well as the company’s software research and development operations. The construction team and timetable were not released. For more information: see www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.et
Friday, October 17, 2008
ENERGY CENTER I RECEIVES LEED-SILVER
Dallas-based Trammell Crow Co. and Des Moines, Iowa-based Principal Real Estate Investors have received LEED-Silver certification from the U.S. Green Building Council for Energy Center I, a 332,000-square-foot office building located adjacent to Interstate 10 and Dairy Ashford in Houston. Completed in January 2008, the project is the largest speculative office building in Houston to receive LEED certification, as well as the first office building in Houston’s Energy Corridor to receive the designation. Sustainable features include high-efficiency chillers; a non-chemical, pulsed-power water treatment system; a CO2-based demand controlled ventilation system; the use of low-emitting adhesives and sealants; low-flow faucets and fixtures; a drip irrigation system; and the use of recycled and locally sourced construction materials during the build. Energy Center I is fully occupied by Foster Wheeler USA, which uses the building as its corporate headquarters. Construction is also advancing for Energy Center II, the second phase of the project. The project has been pre-certified to the LEED-Silver level, and is scheduled for completion in December. For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Thursday, October 16, 2008
Possession is 99% of the LANDLORDS!
While tenants need some certainty, landlords need flexibility to deal with construction timetables, governmental approvals, permitting, weather delays and other variables. Both landlords and tenants have legitimate interests to protect in addressing delivery of possession.
A tenant incurs significant costs and expenses in preparing to accept delivery. Tenants order and schedule the delivery of materials for construction of leasehold improvements, goods and merchandise; commit key personnel for the build-out and store opening; hire employees in contemplation of construction and store operations, and place advertising many months before the grand opening. Failure of the landlord to meet its delivery obligations results in numerous costs and operational ramifications to the tenant. All of these issues compel a prudent tenant to protect itself by adequately addressing delivery of possession and remedies in the event of a landlord breach of its obligations with respect to delivery.
Most tenants would prefer either:
(i) immediate occupancy upon full execution of the
lease, or
(ii) a fixed delivery date that is agreed upon at lease
execution, with the landlord obligated to perform certain specified improvements to the leased premises consistent with plans and specifications approved by the parties.
The more likely scenario, though, is for there to be no fixed delivery date at lease execution. Additionally, while the parties may agree generally on the work to be performed by each party, frequently there are no detailed plans and specifications for either the landlord's work or the tenant's work at lease execution. However, all of these issues need to be adequately addressed in the lease.
Creating a delivery window
The parties should be able to agree on a delivery window, obligating the landlord to deliver the leased premises to the tenant with the landlord's work substantially completed. This window is frequently a period of several months, and if the leased premises are not yet constructed, may be one, two or more years from lease execution. A landlord should be obligated to give the tenant notice by a certain date, typically several months prior to the first day of the delivery window, advising the tenant of the status of the landlord's construction and the estimated date that the landlord will deliver the leased premises to the tenant with the landlord's work substantially complete. This estimated delivery date must fall within the delivery window specified by the parties in the lease.
If agreed to by the parties, the landlord could have the right to revise the estimated delivery date prior to a date certain, by which time the landlord shall give the tenant a firm delivery date upon which the landlord's work shall be substantially completed and the leased premises delivered to the tenant. Upon establishing this final delivery date, the landlord should have no further right to modify the delivery date.
Neither the estimated nor final delivery date should be earlier than
(i) 30 days after the date the tenant receives the
estimated delivery date or the final delivery date from the landlord, as applicable, or
(ii) the first day of the delivery window, as agreed to in
the lease.
Nor should the estimated or final delivery date be later than the last day of the delivery window, as established in the lease.
If the landlord fails to provide notice of the final delivery date on or before the earlier of the final delivery date and 30 days prior to the previously established estimated delivery date, or if the final delivery date established by the landlord does not otherwise comply with the requirements of the lease (e.g., the final delivery date falls outside of the agreed-upon delivery window), the estimated delivery date should be deemed to be the final delivery date. Additionally, if the landlord fails to provide an estimated delivery date on or before the date the estimated delivery date is to be established, or if such date does not comply with the requirements of the lease, then the estimated delivery date should automatically be deemed to be the first or the last day of the delivery window, as established by the parties in the lease.
Tenant remedies for late delivery
In the event the landlord's work is not substantially completed and the leased premises are not delivered to the tenant on or before the final delivery date, the tenant should be entitled to specific remedies on account thereof. Most landlords want to quantify their exposure for late delivery and failure to substantially complete the landlord's work. Typically, the tenant receives a credit against its rental obligations for each day after the final delivery date until delivery of the leased premises is made to the tenant consistent with the terms of the lease, including substantial completion of the landlord's work.
Many tenants ask for a credit against base rent equal to one (1) day of base rent for each day of delay; others can negotiate two (2) days'
credit for each day of delay. Some credits relate to all rent, and some only relate to base rent. A tenant is wise to provide that time is of the essence regarding all the delivery dates discussed above.
A landlord's provision that the landlord shall have no liability for failure to deliver or for late delivery is rarely appropriate.
Deferring delivery or lease termination
In many instances, a rent credit is an insufficient remedy for the tenant. Many tenants only open their stores during certain times of the year. To address the blackout periods, a tenant should have the right, if the delivery has not occurred by a date certain with the landlord's work substantially complete, to defer delivery until a specified date. Some tenants may insist on the right to terminate the lease if the landlord fails to meet its delivery obligations. Most frequently, the tenant will obtain the deferral right, but not the termination right, unless the landlord fails to deliver the leased premises to the tenant with the landlord's work substantially completed by the deferred delivery date. A landlord should provide that the rent credit would abate during this deferred delivery period in the event the tenant exercises such deferred delivery right. In addition, if the tenant exercises a termination right on account of the landlord's inability to deliver the leased premises by a certain date, the tenant should try to obtain a reimbursement obligation from the landlord for the tenant's out-of-pocket costs incurred in negotiating the lease and preparing to occupy the demised premises. If the landlord agrees to same, the landlord usually will cap its exposure to a tenant for these costs.
Force majeure
Most of the foregoing dates and remedies should be subject to force majeure. However, a prudent tenant will insist that there be some outside date by which the tenant has the right to terminate the lease, regardless of whether the landlord failed to meet such date on account of force majeure or otherwise. While the landlord's damages may be tolled by force majeure, at some point a tenant should have a termination right, regardless of force majeure. A landlord should be obligated to give notice to the tenant in the event of a force majeure event. A strong tenant will insist that the landlord's failure to notify the tenant of a force majeure event within a specific number of days after the force majeure event will nullify the landlord's right to claim a delay on account of force majeure.
Landlord and tenant work obligations
Delivery without the landlord's approval of plans and specifications for the tenant's work should be unacceptable to a tenant. If a tenant cannot commence its work, it does not want delivery of possession. While many leases describe generally the work to be performed by the parties, the lease should provide for the parties to agree upon plans and specifications for both parties' work obligations. Within a certain number of days after lease execution, each party should be obligated to deliver to the other plans and specifications for their proposed work. Each party should have an affirmative obligation to provide comments thereto within a specified number of days after receipt thereof, with specific comments and proposed modifications thereto. Typically each party should be obligated to revise its proposed plans to reflect the reasonable objections and proposed modifications of the other party within a specified time thereafter.
This process of reviewing and submitting should continue until the plans and specifications have been approved by both parties. Failure to respond within the specified time frame should be deemed approval by the party failing to respond to the plans as last submitted. The lease should further provide for the landlord to obtain all necessary building occupancy permits necessary to perform the landlord's work, and the lease should address who is obligated to obtain the necessary permits and approvals for the tenant to perform its work and open the leased premises for business to the public. The lease should also state the landlord's obligations with respect to completion of common area improvements, including parking areas, curb cuts, lighting and landscaping. Certain common areas should be identified on the site plan of the center, which areas must be completed in order for the tenant to open and operate for business in the leased premises.
Many tenants do not want the delivery date to be deemed to have occurred until the tenant has been able to obtain all necessary permits to perform tenant's work. This is a negotiable item, depending on the strength of the parties and the scope of the work to be performed by each party.
Joint walk throughs
The parties should provide in the lease that they shall conduct a joint walk-through of the leased premises approximately 2 to 3 weeks prior to the final delivery date to ascertain the status of the landlord's construction and to identify items that need to be performed prior to delivery.
Completion of construction
The lease should identify what items the landlord must complete and provide to the tenant prior to delivery of possession and/or prior to the tenant's opening for business, such as occupancy permits, governmental approvals, certificates of completion by the landlord's architect, copies of contractor, subcontractor and supplier warranties, operation and maintenance manuals, the landlord's record drawings for construction of the leased premises, utility contact information, utility meter information, a subcontractor list with contact information, etc. All of these items are negotiable and the landlord may or may not be willing to provide them, depending on the tenant's negotiating strength.
Many things need to happen in a timely manner for a tenant to obtain possession at the time contemplated by the parties upon lease execution.
Landlords and tenants should not leave these issues to chance. Properly addressing delivery windows, dates, updates and revisions to the timing and the work obligations of the parties well in advance of delivery can greatly facilitate a smooth and timely delivery of possession of the leased premises to the tenant with the landlord's work substantially complete. A prudent tenant will protect itself and guard against delays and the consequences thereof, while providing some reasonable flexibility to the landlord to address the realities of construction and permitting requirements, many of which are beyond the landlord's reasonable control. By addressing these issues in the lease, both parties can protect themselves and facilitate a good start to their lease relationship prior to delivery and well in advance of the rent commencement date." For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
A tenant incurs significant costs and expenses in preparing to accept delivery. Tenants order and schedule the delivery of materials for construction of leasehold improvements, goods and merchandise; commit key personnel for the build-out and store opening; hire employees in contemplation of construction and store operations, and place advertising many months before the grand opening. Failure of the landlord to meet its delivery obligations results in numerous costs and operational ramifications to the tenant. All of these issues compel a prudent tenant to protect itself by adequately addressing delivery of possession and remedies in the event of a landlord breach of its obligations with respect to delivery.
Most tenants would prefer either:
(i) immediate occupancy upon full execution of the
lease, or
(ii) a fixed delivery date that is agreed upon at lease
execution, with the landlord obligated to perform certain specified improvements to the leased premises consistent with plans and specifications approved by the parties.
The more likely scenario, though, is for there to be no fixed delivery date at lease execution. Additionally, while the parties may agree generally on the work to be performed by each party, frequently there are no detailed plans and specifications for either the landlord's work or the tenant's work at lease execution. However, all of these issues need to be adequately addressed in the lease.
Creating a delivery window
The parties should be able to agree on a delivery window, obligating the landlord to deliver the leased premises to the tenant with the landlord's work substantially completed. This window is frequently a period of several months, and if the leased premises are not yet constructed, may be one, two or more years from lease execution. A landlord should be obligated to give the tenant notice by a certain date, typically several months prior to the first day of the delivery window, advising the tenant of the status of the landlord's construction and the estimated date that the landlord will deliver the leased premises to the tenant with the landlord's work substantially complete. This estimated delivery date must fall within the delivery window specified by the parties in the lease.
If agreed to by the parties, the landlord could have the right to revise the estimated delivery date prior to a date certain, by which time the landlord shall give the tenant a firm delivery date upon which the landlord's work shall be substantially completed and the leased premises delivered to the tenant. Upon establishing this final delivery date, the landlord should have no further right to modify the delivery date.
Neither the estimated nor final delivery date should be earlier than
(i) 30 days after the date the tenant receives the
estimated delivery date or the final delivery date from the landlord, as applicable, or
(ii) the first day of the delivery window, as agreed to in
the lease.
Nor should the estimated or final delivery date be later than the last day of the delivery window, as established in the lease.
If the landlord fails to provide notice of the final delivery date on or before the earlier of the final delivery date and 30 days prior to the previously established estimated delivery date, or if the final delivery date established by the landlord does not otherwise comply with the requirements of the lease (e.g., the final delivery date falls outside of the agreed-upon delivery window), the estimated delivery date should be deemed to be the final delivery date. Additionally, if the landlord fails to provide an estimated delivery date on or before the date the estimated delivery date is to be established, or if such date does not comply with the requirements of the lease, then the estimated delivery date should automatically be deemed to be the first or the last day of the delivery window, as established by the parties in the lease.
Tenant remedies for late delivery
In the event the landlord's work is not substantially completed and the leased premises are not delivered to the tenant on or before the final delivery date, the tenant should be entitled to specific remedies on account thereof. Most landlords want to quantify their exposure for late delivery and failure to substantially complete the landlord's work. Typically, the tenant receives a credit against its rental obligations for each day after the final delivery date until delivery of the leased premises is made to the tenant consistent with the terms of the lease, including substantial completion of the landlord's work.
Many tenants ask for a credit against base rent equal to one (1) day of base rent for each day of delay; others can negotiate two (2) days'
credit for each day of delay. Some credits relate to all rent, and some only relate to base rent. A tenant is wise to provide that time is of the essence regarding all the delivery dates discussed above.
A landlord's provision that the landlord shall have no liability for failure to deliver or for late delivery is rarely appropriate.
Deferring delivery or lease termination
In many instances, a rent credit is an insufficient remedy for the tenant. Many tenants only open their stores during certain times of the year. To address the blackout periods, a tenant should have the right, if the delivery has not occurred by a date certain with the landlord's work substantially complete, to defer delivery until a specified date. Some tenants may insist on the right to terminate the lease if the landlord fails to meet its delivery obligations. Most frequently, the tenant will obtain the deferral right, but not the termination right, unless the landlord fails to deliver the leased premises to the tenant with the landlord's work substantially completed by the deferred delivery date. A landlord should provide that the rent credit would abate during this deferred delivery period in the event the tenant exercises such deferred delivery right. In addition, if the tenant exercises a termination right on account of the landlord's inability to deliver the leased premises by a certain date, the tenant should try to obtain a reimbursement obligation from the landlord for the tenant's out-of-pocket costs incurred in negotiating the lease and preparing to occupy the demised premises. If the landlord agrees to same, the landlord usually will cap its exposure to a tenant for these costs.
Force majeure
Most of the foregoing dates and remedies should be subject to force majeure. However, a prudent tenant will insist that there be some outside date by which the tenant has the right to terminate the lease, regardless of whether the landlord failed to meet such date on account of force majeure or otherwise. While the landlord's damages may be tolled by force majeure, at some point a tenant should have a termination right, regardless of force majeure. A landlord should be obligated to give notice to the tenant in the event of a force majeure event. A strong tenant will insist that the landlord's failure to notify the tenant of a force majeure event within a specific number of days after the force majeure event will nullify the landlord's right to claim a delay on account of force majeure.
Landlord and tenant work obligations
Delivery without the landlord's approval of plans and specifications for the tenant's work should be unacceptable to a tenant. If a tenant cannot commence its work, it does not want delivery of possession. While many leases describe generally the work to be performed by the parties, the lease should provide for the parties to agree upon plans and specifications for both parties' work obligations. Within a certain number of days after lease execution, each party should be obligated to deliver to the other plans and specifications for their proposed work. Each party should have an affirmative obligation to provide comments thereto within a specified number of days after receipt thereof, with specific comments and proposed modifications thereto. Typically each party should be obligated to revise its proposed plans to reflect the reasonable objections and proposed modifications of the other party within a specified time thereafter.
This process of reviewing and submitting should continue until the plans and specifications have been approved by both parties. Failure to respond within the specified time frame should be deemed approval by the party failing to respond to the plans as last submitted. The lease should further provide for the landlord to obtain all necessary building occupancy permits necessary to perform the landlord's work, and the lease should address who is obligated to obtain the necessary permits and approvals for the tenant to perform its work and open the leased premises for business to the public. The lease should also state the landlord's obligations with respect to completion of common area improvements, including parking areas, curb cuts, lighting and landscaping. Certain common areas should be identified on the site plan of the center, which areas must be completed in order for the tenant to open and operate for business in the leased premises.
Many tenants do not want the delivery date to be deemed to have occurred until the tenant has been able to obtain all necessary permits to perform tenant's work. This is a negotiable item, depending on the strength of the parties and the scope of the work to be performed by each party.
Joint walk throughs
The parties should provide in the lease that they shall conduct a joint walk-through of the leased premises approximately 2 to 3 weeks prior to the final delivery date to ascertain the status of the landlord's construction and to identify items that need to be performed prior to delivery.
Completion of construction
The lease should identify what items the landlord must complete and provide to the tenant prior to delivery of possession and/or prior to the tenant's opening for business, such as occupancy permits, governmental approvals, certificates of completion by the landlord's architect, copies of contractor, subcontractor and supplier warranties, operation and maintenance manuals, the landlord's record drawings for construction of the leased premises, utility contact information, utility meter information, a subcontractor list with contact information, etc. All of these items are negotiable and the landlord may or may not be willing to provide them, depending on the tenant's negotiating strength.
Many things need to happen in a timely manner for a tenant to obtain possession at the time contemplated by the parties upon lease execution.
Landlords and tenants should not leave these issues to chance. Properly addressing delivery windows, dates, updates and revisions to the timing and the work obligations of the parties well in advance of delivery can greatly facilitate a smooth and timely delivery of possession of the leased premises to the tenant with the landlord's work substantially complete. A prudent tenant will protect itself and guard against delays and the consequences thereof, while providing some reasonable flexibility to the landlord to address the realities of construction and permitting requirements, many of which are beyond the landlord's reasonable control. By addressing these issues in the lease, both parties can protect themselves and facilitate a good start to their lease relationship prior to delivery and well in advance of the rent commencement date." For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Wednesday, October 15, 2008
Escalation issues
1. Well-designed office key to improving employee performance
Workplace design has a very real impact on companies' bottom lines.
"Businesses are embracing performance-focused workplace design as a strategic business initiative – as the forum that can drive employee excellence, business objectives, and ultimately, the bottom line.
In practice, many businesses seem to ascribe a low value to workplace design. Businesses that ignore the design and layout of their workplace are failing to optimize the full value of their human capital.
46% of workers surveyed do not believe creating a productive workplace is a priority at their companies, and 40% say that minimizing costs is the main reason behind their workplace's current layout. 20% rated their physical workplace environment as being only fair to poor.
The survey, conducted by Gensler, also demonstrates a link between the physical office and work processes such as innovation, collaboration and creativity. Two-thirds of workers believe they are more efficient when they work closely with co-workers. However, about 30% of workers don't think that their current workspace promotes spontaneous interaction, collaboration, or cooperation and teamwork among colleagues and direct reports. Only 50% believe that their current workplace design encourages innovation and creativity.
Topping the list of employee grievances about physical environment were:
a. Lack of space;
b. Too few quiet areas;
c. Uncomfortable workstations; and
d. Bad layout and design
Other results from the study include:
· Over 1/3 of respondents say their current workplace does
not promote health and well being;
· 62% of U.S. office workers have great respect for leaders
who work in an open plan environment with teams rather than in private offices.
· Only 42% of respondents say they would be proud to show
important customers or potential recruits their current workplaces."
Messages in this topic (1)
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2. Escalation issues
Except for very short-term leases, almost every commercial lease executed today contains a rent escalation clause.
from Probate & Property, July/August 2006
"The trend is for landlords to create a lease in which the tenant pays a fixed return to the landlord plus reimbursement of many capital and expense items, such as taxes, insurance, maintenance, and operations. In effect, this trend applies the concept of the net lease - which formerly applied only to the leases of a freestanding structure to a single tenant- to all commercial leases.
Rent Escalation Methods
Landlords and tenants might structure a rent escalation clause in several ways.
These methods include increasing the rent by
• A fixed amount each year,
• The percentage increase in either the consumer price index (CPI)
or another inflationary index, or
• The actual increase in the landlord's operating,
maintenance, and insurance expenses and real estate taxes.
Some standard leases use a combination of 2 or more of these methods.
The most common escalation clause passes through to the tenant any increase in operating expenses and real estate tax. Landlords choose this technique for good reason. Because it is the most frequently used escalation provision, most tenants will accept it, and, of the available escalation methods, it is the most accurate reflection of a landlord's increased operating costs, because its computation should create an increase exactly equal to those costs. Yet it is the most complex of the 3 escalators.
Some leases have the tenants pay a percentage share of the total operating expenses for the operating year, but the more typical clause requires payment by each tenant of its percentage share of the increase in costs for the operating year over a base amount. When the increase is over a base amount, setting that base is crucial to the tenant.
Problems with Definitions- Property
The most significant definitional problem with operating expenses for the tenant relates to the definition of the landlord's property to which the pass-through charges apply. Normally, the landlord's property should be defined as the office, warehouse, or shopping center building or complex of buildings, any adjoining parking garage that serves the building, the real estate on which these improvements are situated, and private streets and easements, all of which are owned by the landlord. In some instances, though, the adjoining private streets or easements accessing the building are jointly owned or shared with third parties. In those circumstances, street and easement expenses should be shared proportionately with the third party.
The tenant should receive a breakdown of the real estate - that is, property descriptions, rates, and value - as of the commencement date of the lease. The tenant should determine whether the building is assessed at its full value or at a lesser sum in the event that the building is not fully completed or fully occupied. If the building is not completed, and therefore is assessed at less than its full value, the tenant will be subject to an escalation, even though the tax rate did not change, simply because the building was not fully assessed. The concept also holds true for an adjoining parking garage. Also, if any improvements are added to the building or parking garage after the commencement date of the lease or if any adjacent property is acquired, taxes on those items should be disclosed.
Taxes
A final area of concern is the tenant's liability for taxes. For example, if the landlord contests taxes and obtains a reduction or a refund, the tenant should share the benefit as a future credit or, if the term is at its end, receive a refund instead. Some states permit a tenant to contest property taxes.
With some minor exceptions, assessments payable in installments should be determined on an accrual basis. Each taxing authority has its own timetable for the payment of real estate ad valorem taxes. The taxes may be determined on a fiscal or calendar year basis and may be payable quarterly, semiannually, or annually with a penalty for late payment.
The tax reimbursement clause should dovetail with this actual timetable."
Messages in this topic (1)
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3. Landlord's consent to sublease
Whether a landlord's refusal to consent to a sublease to a bank was unreasonable when tenant was a grocery store and landlord had reserved a spot in the shopping center.
from Recent Developments and Trends in Shopping Center Law, 2008 U.S.
Shopping Center Law Conference
"Carr-Gottstein Foods Co. (Tenant) leased space in a shopping center to be used as a grocery store from Norville (Landlord). The lease provided that Tenant must obtain Landlord's written approval prior to subletting and that Landlord must not unreasonably withhold such consent.
Tenant requested Landlord consent to a sublease to a bank.
Landlord withheld consent by demanding 75% of the bank's rent.
Tenant sued Landlord, alleging that Landlord's withholding of consent was unreasonable and in violation of the lease. Tenant argued that Landlord could not withhold consent to a sublease to a bank because under the lease, Tenant was permitted to operate a bank in its store.
Landlord consented that banking was a permitted use under the lease.
The trial court granted summary judgment for Tenant.
Norville v. Carr-Gottstein Foods Co., 84 P.3d 996 (Alaska 2004)
Holding:
Reversed. The Supreme Court of Alaska held that material issues of fact remained as to whether Landlord's withholding of consent to the sublease was unreasonable. Tenant's argument that under the lease Landlord must consent to any sublease that was for a use that would be permitted the Tenant's Use Clause if conducted by Tenant was incorrect as a matter of law. Reasonableness was the only limitation specified regarding the right of the Landlord to withhold consent.
Furthermore, Landlord's proffered reasons for withholding consent – a bank would interfere with Landlord's plan to lease space in the shopping center to another bank, and gross sales, and therefore percentage rents, would be impaired – are legitimate reasonable not impermissible under the lease's terms.
Whether Landlord's reasons for withholding consent were genuine and reasonable under the circumstances were questions of fact to be determined by the tried of fact.
The court also ruled that material issues of fact remained as to whether Tenant's lease permitted general branch banking."
Messages in this topic (1)
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4. Breathing new life into former big box properties
Flexibility and patience are key to re-tenanting vacant big box facilities.
from Shopping Center Business, November 2008
"Many of the big boxes, including pet stores, discount retailers, electronics and sporting goods retailers of the 1990s have disappeared, often dragging the rest of the shopping center down with them. But when these facilities close, they leave behind opportunities for profit in an interesting real estate market niche: the acquisition and leasing of vacant or partially leased former big box retail locations.
These opportunities are often overlooked by larger developers and owners. It takes a certain kind of investor with specific skills, resources and patience to take advantage of these value-added opportunities successfully.
Big box properties for sale nationwide
No single driver fuels the recent trend of big box properties closing their doors. Mergers and bankruptcies play a key role. In some areas, demographics and market dynamics change, prompting retailers to seek new locations. Retail stores may follow the pull away from historic business core areas to more promising locations. Some retailers may decide to leave a regional market altogether.
Transforming undervalued properties into profit centers
A key advantage of these properties is that existing buildings, with full entitlements, can be acquired at a much lower cost than it takes to build a new facility in today's market.
The greatest challenge is to determine what to do with the building.
The successful buyer must be willing to buy quickly without having to identify a replacement tenant before closing. Further complicating the process is problematic acquisition financing – conventional underwriting standards will usually frown on a vacant big box with its negative cash flow.
With the capability to hold on to and carry a vacant or partly leased property for as long as 18 to 24 months, a buyer can seek potential users and try to anticipate the ways in which the market will develop.
Finding the right use for a former big box store
The first prospects to look at are the retailers who are similar to the former tenants. After that, flexibility is the key.
A typical challenge of big boxes: their extreme depth. Because the majority of retailers do not want depth of 350 to 400 feet (not atypical), owners may simply wall off the back part of the building, tear it down, or find alternative uses for it, such as storage.
Community issues figure in big box property re-use
Vacant big box properties can become problematic for a community. Their visibility can create a perception that the area is not a good retail market. The absence of retail tenants interrupts sales tax revenues.
Facilities can also become eyesores, inviting vandalism and trash dumping.
Some communities can impose complicated or unrealistic requirements on buyers and redevelopers, who must match the desires of the local communities with what is most practical and the best solution for an old location.
Success and profitability in a range of different markets
Many of these vacant big box transactions are one-off deals, too small to interest larger investment companies who have no appetite for risk.
As a nimble, niche operator in smaller markets, with the ability to close transactions fast, a specialist firm can acquire distressed, vacant and even stigmatized properties from different sellers and revitalize them successfully in different ways. To find the best opportunities, the buyer must be looking for properties in several different secondary and tertiary markets that show promise. The important ingredient is the understanding that patience will be required for success in all of these types of acquisitions. That is where the opportunities lie."
For more information see http://www.houstonrealtyadvisors.com/ or http://www.houstonrealtyadvisors.net/
Workplace design has a very real impact on companies' bottom lines.
"Businesses are embracing performance-focused workplace design as a strategic business initiative – as the forum that can drive employee excellence, business objectives, and ultimately, the bottom line.
In practice, many businesses seem to ascribe a low value to workplace design. Businesses that ignore the design and layout of their workplace are failing to optimize the full value of their human capital.
46% of workers surveyed do not believe creating a productive workplace is a priority at their companies, and 40% say that minimizing costs is the main reason behind their workplace's current layout. 20% rated their physical workplace environment as being only fair to poor.
The survey, conducted by Gensler, also demonstrates a link between the physical office and work processes such as innovation, collaboration and creativity. Two-thirds of workers believe they are more efficient when they work closely with co-workers. However, about 30% of workers don't think that their current workspace promotes spontaneous interaction, collaboration, or cooperation and teamwork among colleagues and direct reports. Only 50% believe that their current workplace design encourages innovation and creativity.
Topping the list of employee grievances about physical environment were:
a. Lack of space;
b. Too few quiet areas;
c. Uncomfortable workstations; and
d. Bad layout and design
Other results from the study include:
· Over 1/3 of respondents say their current workplace does
not promote health and well being;
· 62% of U.S. office workers have great respect for leaders
who work in an open plan environment with teams rather than in private offices.
· Only 42% of respondents say they would be proud to show
important customers or potential recruits their current workplaces."
Messages in this topic (1)
________________________________________________________________________
________________________________________________________________________
2. Escalation issues
Except for very short-term leases, almost every commercial lease executed today contains a rent escalation clause.
from Probate & Property, July/August 2006
"The trend is for landlords to create a lease in which the tenant pays a fixed return to the landlord plus reimbursement of many capital and expense items, such as taxes, insurance, maintenance, and operations. In effect, this trend applies the concept of the net lease - which formerly applied only to the leases of a freestanding structure to a single tenant- to all commercial leases.
Rent Escalation Methods
Landlords and tenants might structure a rent escalation clause in several ways.
These methods include increasing the rent by
• A fixed amount each year,
• The percentage increase in either the consumer price index (CPI)
or another inflationary index, or
• The actual increase in the landlord's operating,
maintenance, and insurance expenses and real estate taxes.
Some standard leases use a combination of 2 or more of these methods.
The most common escalation clause passes through to the tenant any increase in operating expenses and real estate tax. Landlords choose this technique for good reason. Because it is the most frequently used escalation provision, most tenants will accept it, and, of the available escalation methods, it is the most accurate reflection of a landlord's increased operating costs, because its computation should create an increase exactly equal to those costs. Yet it is the most complex of the 3 escalators.
Some leases have the tenants pay a percentage share of the total operating expenses for the operating year, but the more typical clause requires payment by each tenant of its percentage share of the increase in costs for the operating year over a base amount. When the increase is over a base amount, setting that base is crucial to the tenant.
Problems with Definitions- Property
The most significant definitional problem with operating expenses for the tenant relates to the definition of the landlord's property to which the pass-through charges apply. Normally, the landlord's property should be defined as the office, warehouse, or shopping center building or complex of buildings, any adjoining parking garage that serves the building, the real estate on which these improvements are situated, and private streets and easements, all of which are owned by the landlord. In some instances, though, the adjoining private streets or easements accessing the building are jointly owned or shared with third parties. In those circumstances, street and easement expenses should be shared proportionately with the third party.
The tenant should receive a breakdown of the real estate - that is, property descriptions, rates, and value - as of the commencement date of the lease. The tenant should determine whether the building is assessed at its full value or at a lesser sum in the event that the building is not fully completed or fully occupied. If the building is not completed, and therefore is assessed at less than its full value, the tenant will be subject to an escalation, even though the tax rate did not change, simply because the building was not fully assessed. The concept also holds true for an adjoining parking garage. Also, if any improvements are added to the building or parking garage after the commencement date of the lease or if any adjacent property is acquired, taxes on those items should be disclosed.
Taxes
A final area of concern is the tenant's liability for taxes. For example, if the landlord contests taxes and obtains a reduction or a refund, the tenant should share the benefit as a future credit or, if the term is at its end, receive a refund instead. Some states permit a tenant to contest property taxes.
With some minor exceptions, assessments payable in installments should be determined on an accrual basis. Each taxing authority has its own timetable for the payment of real estate ad valorem taxes. The taxes may be determined on a fiscal or calendar year basis and may be payable quarterly, semiannually, or annually with a penalty for late payment.
The tax reimbursement clause should dovetail with this actual timetable."
Messages in this topic (1)
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________________________________________________________________________
3. Landlord's consent to sublease
Whether a landlord's refusal to consent to a sublease to a bank was unreasonable when tenant was a grocery store and landlord had reserved a spot in the shopping center.
from Recent Developments and Trends in Shopping Center Law, 2008 U.S.
Shopping Center Law Conference
"Carr-Gottstein Foods Co. (Tenant) leased space in a shopping center to be used as a grocery store from Norville (Landlord). The lease provided that Tenant must obtain Landlord's written approval prior to subletting and that Landlord must not unreasonably withhold such consent.
Tenant requested Landlord consent to a sublease to a bank.
Landlord withheld consent by demanding 75% of the bank's rent.
Tenant sued Landlord, alleging that Landlord's withholding of consent was unreasonable and in violation of the lease. Tenant argued that Landlord could not withhold consent to a sublease to a bank because under the lease, Tenant was permitted to operate a bank in its store.
Landlord consented that banking was a permitted use under the lease.
The trial court granted summary judgment for Tenant.
Norville v. Carr-Gottstein Foods Co., 84 P.3d 996 (Alaska 2004)
Holding:
Reversed. The Supreme Court of Alaska held that material issues of fact remained as to whether Landlord's withholding of consent to the sublease was unreasonable. Tenant's argument that under the lease Landlord must consent to any sublease that was for a use that would be permitted the Tenant's Use Clause if conducted by Tenant was incorrect as a matter of law. Reasonableness was the only limitation specified regarding the right of the Landlord to withhold consent.
Furthermore, Landlord's proffered reasons for withholding consent – a bank would interfere with Landlord's plan to lease space in the shopping center to another bank, and gross sales, and therefore percentage rents, would be impaired – are legitimate reasonable not impermissible under the lease's terms.
Whether Landlord's reasons for withholding consent were genuine and reasonable under the circumstances were questions of fact to be determined by the tried of fact.
The court also ruled that material issues of fact remained as to whether Tenant's lease permitted general branch banking."
Messages in this topic (1)
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4. Breathing new life into former big box properties
Flexibility and patience are key to re-tenanting vacant big box facilities.
from Shopping Center Business, November 2008
"Many of the big boxes, including pet stores, discount retailers, electronics and sporting goods retailers of the 1990s have disappeared, often dragging the rest of the shopping center down with them. But when these facilities close, they leave behind opportunities for profit in an interesting real estate market niche: the acquisition and leasing of vacant or partially leased former big box retail locations.
These opportunities are often overlooked by larger developers and owners. It takes a certain kind of investor with specific skills, resources and patience to take advantage of these value-added opportunities successfully.
Big box properties for sale nationwide
No single driver fuels the recent trend of big box properties closing their doors. Mergers and bankruptcies play a key role. In some areas, demographics and market dynamics change, prompting retailers to seek new locations. Retail stores may follow the pull away from historic business core areas to more promising locations. Some retailers may decide to leave a regional market altogether.
Transforming undervalued properties into profit centers
A key advantage of these properties is that existing buildings, with full entitlements, can be acquired at a much lower cost than it takes to build a new facility in today's market.
The greatest challenge is to determine what to do with the building.
The successful buyer must be willing to buy quickly without having to identify a replacement tenant before closing. Further complicating the process is problematic acquisition financing – conventional underwriting standards will usually frown on a vacant big box with its negative cash flow.
With the capability to hold on to and carry a vacant or partly leased property for as long as 18 to 24 months, a buyer can seek potential users and try to anticipate the ways in which the market will develop.
Finding the right use for a former big box store
The first prospects to look at are the retailers who are similar to the former tenants. After that, flexibility is the key.
A typical challenge of big boxes: their extreme depth. Because the majority of retailers do not want depth of 350 to 400 feet (not atypical), owners may simply wall off the back part of the building, tear it down, or find alternative uses for it, such as storage.
Community issues figure in big box property re-use
Vacant big box properties can become problematic for a community. Their visibility can create a perception that the area is not a good retail market. The absence of retail tenants interrupts sales tax revenues.
Facilities can also become eyesores, inviting vandalism and trash dumping.
Some communities can impose complicated or unrealistic requirements on buyers and redevelopers, who must match the desires of the local communities with what is most practical and the best solution for an old location.
Success and profitability in a range of different markets
Many of these vacant big box transactions are one-off deals, too small to interest larger investment companies who have no appetite for risk.
As a nimble, niche operator in smaller markets, with the ability to close transactions fast, a specialist firm can acquire distressed, vacant and even stigmatized properties from different sellers and revitalize them successfully in different ways. To find the best opportunities, the buyer must be looking for properties in several different secondary and tertiary markets that show promise. The important ingredient is the understanding that patience will be required for success in all of these types of acquisitions. That is where the opportunities lie."
For more information see http://www.houstonrealtyadvisors.com/ or http://www.houstonrealtyadvisors.net/
Tuesday, October 14, 2008
POST OAK SALE COLLAPSE
A deal to sell the Post Oak Central office complex is off.
Owners Crescent Real Estate Equities LLC, JP Morgan and General Electric Co. had a contract to sell the three buildings to Los Angeles-based CB Richard Ellis Investors, an affiliate of CB Richard Ellis Group Inc. with $43.7 billion in assets under management. But the buyer is not going through with the deal, sources say.
CBRE Investors was expected to pay about $240 million, or $185 per square foot, for the properties.
Located in the Galleria area, Post Oak Central consists of buildings at 1980, 1990 and 2000 Post Oak Blvd. The complex has just under 1.3 million square feet of office space that is about 92 percent leased.
CBRE Investors was one of nearly a dozen groups that bid on Post Oak Central, according to Holliday Fenoglio Fowler LP, which is marketing the buildings. For more information see www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Owners Crescent Real Estate Equities LLC, JP Morgan and General Electric Co. had a contract to sell the three buildings to Los Angeles-based CB Richard Ellis Investors, an affiliate of CB Richard Ellis Group Inc. with $43.7 billion in assets under management. But the buyer is not going through with the deal, sources say.
CBRE Investors was expected to pay about $240 million, or $185 per square foot, for the properties.
Located in the Galleria area, Post Oak Central consists of buildings at 1980, 1990 and 2000 Post Oak Blvd. The complex has just under 1.3 million square feet of office space that is about 92 percent leased.
CBRE Investors was one of nearly a dozen groups that bid on Post Oak Central, according to Holliday Fenoglio Fowler LP, which is marketing the buildings. For more information see www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Monday, October 13, 2008
99 Ranch Market hitches Asian post to Houston with first store in Texas
An established chain of Asian grocery stores from California has leased space in a hot corridor of Interstate 10 to open the company’s first Texas location.
The store, 99 Ranch Market, will set up shop in a vacant space formerly occupied by a different kind of international grocery store — Fiesta Mart, which closed at the end of last year. 99 Ranch Market will occupy the 84,000-square-foot former Fiesta space on the northwest corner of I-10 and Blalock in the Blalock Market Shopping Center.
99 Ranch Market, part of Buena Park, Calif.-based Tawa Supermarket Inc., leased the space from Houston-based Weingarten Realty Investors, which was represented by John Wise on the transaction.
The grocery store will offer a variety of Asian products and exotic Far Eastern food when it opens next summer. Products will include Asian delicacies, fresh meat, seafood and produce.
Founded in 1984, Tawa Supermarket has 25 full-service stores in California and Washington. The chain also has licensee stores in Nevada, Georgia and Indonesia.
Jennifer Tsao, a Tawa spokeswoman in California, says the Weingarten site was chosen for the entrance into Texas because it’s conveniently located on the freeway.
The store’s proximity to I-10, however, caused Weingarten to lose quite a bit of the parking lot due to the freeway expansion project several months ago, which is part of the reason Fiesta decided to close its store.
Suzanne Anderson, a regional leasing director with Weingarten, says the parking lot will be restriped to maximize the number of available parking spaces.
“We’re going to have to re-lay out the parking,” she says. “It’s still going to be under what the typical grocery store might have.”
The store itself will gain a new look, but the building will basically stay the same.
“We’re not anticipating major structural changes,” Anderson says. “None of the building is going to be torn down.”For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
The store, 99 Ranch Market, will set up shop in a vacant space formerly occupied by a different kind of international grocery store — Fiesta Mart, which closed at the end of last year. 99 Ranch Market will occupy the 84,000-square-foot former Fiesta space on the northwest corner of I-10 and Blalock in the Blalock Market Shopping Center.
99 Ranch Market, part of Buena Park, Calif.-based Tawa Supermarket Inc., leased the space from Houston-based Weingarten Realty Investors, which was represented by John Wise on the transaction.
The grocery store will offer a variety of Asian products and exotic Far Eastern food when it opens next summer. Products will include Asian delicacies, fresh meat, seafood and produce.
Founded in 1984, Tawa Supermarket has 25 full-service stores in California and Washington. The chain also has licensee stores in Nevada, Georgia and Indonesia.
Jennifer Tsao, a Tawa spokeswoman in California, says the Weingarten site was chosen for the entrance into Texas because it’s conveniently located on the freeway.
The store’s proximity to I-10, however, caused Weingarten to lose quite a bit of the parking lot due to the freeway expansion project several months ago, which is part of the reason Fiesta decided to close its store.
Suzanne Anderson, a regional leasing director with Weingarten, says the parking lot will be restriped to maximize the number of available parking spaces.
“We’re going to have to re-lay out the parking,” she says. “It’s still going to be under what the typical grocery store might have.”
The store itself will gain a new look, but the building will basically stay the same.
“We’re not anticipating major structural changes,” Anderson says. “None of the building is going to be torn down.”For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Thursday, October 9, 2008
FOXCONN SIGNS BIG LEASE
Macfarlan Capital Partners and Buchanan Street Partners have secured the first tenant for Centre at Cypress Creek after acquiring the big chunk of former Hewlett-Packard Co. property in July 2007 for redevelopment.
Foxconn Technology Group has leased 40,000 square feet of office space in the complex at the southwest corner of State Highway 249 and Compaq Center Drive.
The 44-acre Centre at Cypress Creek in northwest Houston is comprised of three interconnected, four-story office buildings and a two-story, 400,000-square-foot office building, each with a parking garage. The buildings, which date back to the early 1980s, include the former headquarters of Compaq Computer Corp., which was acquired in 2002 by HP.
John Jenkins, a partner with Macfarlan Capital Partners, says the owners are just now wrapping up the redevelopment project, which took about $25 million and more than a year to complete.
“It allows us to bring a high-end corporate campus feel into a multitenant environment,” Jenkins said.
Foxconn, which provides parts and services to computer, communication and consumer electronics clients, decided to lease space in Centre at Cypress Creek in part to be next door to HP.
“They decided to go up there to nuzzle up to one of their major clients,” said Brad Marnitz of NAI Houston, who handled the lease deal for Foxconn.
Foxconn currently has several hundred thousand square feet of industrial space with an office component in several buildings around S.H. 249 and Beltway 8. Marnitz said the company is moving office personnel out of the warehouses to make more room for manufacturing.
This is Foxconn’s first office lease in Houston, he said, and it’s a great location for the employees. The firm will start moving in this month and finish by the end of the year.
Michelle Wogan, Dani Allison and Jennifer Leroy of Transwestern represented the landlord on the lease. for more informaion see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Foxconn Technology Group has leased 40,000 square feet of office space in the complex at the southwest corner of State Highway 249 and Compaq Center Drive.
The 44-acre Centre at Cypress Creek in northwest Houston is comprised of three interconnected, four-story office buildings and a two-story, 400,000-square-foot office building, each with a parking garage. The buildings, which date back to the early 1980s, include the former headquarters of Compaq Computer Corp., which was acquired in 2002 by HP.
John Jenkins, a partner with Macfarlan Capital Partners, says the owners are just now wrapping up the redevelopment project, which took about $25 million and more than a year to complete.
“It allows us to bring a high-end corporate campus feel into a multitenant environment,” Jenkins said.
Foxconn, which provides parts and services to computer, communication and consumer electronics clients, decided to lease space in Centre at Cypress Creek in part to be next door to HP.
“They decided to go up there to nuzzle up to one of their major clients,” said Brad Marnitz of NAI Houston, who handled the lease deal for Foxconn.
Foxconn currently has several hundred thousand square feet of industrial space with an office component in several buildings around S.H. 249 and Beltway 8. Marnitz said the company is moving office personnel out of the warehouses to make more room for manufacturing.
This is Foxconn’s first office lease in Houston, he said, and it’s a great location for the employees. The firm will start moving in this month and finish by the end of the year.
Michelle Wogan, Dani Allison and Jennifer Leroy of Transwestern represented the landlord on the lease. for more informaion see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Tuesday, October 7, 2008
Amerigroup Corp sign 156,000 sq ft lease
Amerigroup Corp. has signed a lease that will move the company from Bellaire to Greenway Plaza.
The company, which operates Medicaid and Medicare programs, recently leased about 26,500 square feet in the building at 3800 Buffalo Speedway — part of the Greenway Plaza office complex. One attraction was the building’s close proximity to U.S. Highway 59.
While Amerigroup is jumping from a 76,000-square-foot building at 6700 West Loop South to the 156,000-square-foot Buffalo Speedway building about four miles away, the company’s new office will be about the same size as the old one.
Ryan Bishop and Preston Young of Stream Realty Partners LP represented Greenway Plaza in lease negotiations. Keith Lloyd of Grubb & Ellis Co. represented Amerigroup. For more information see : www.houstonrealtyadviors.com or www.houstonrealtyadvisors.net
The company, which operates Medicaid and Medicare programs, recently leased about 26,500 square feet in the building at 3800 Buffalo Speedway — part of the Greenway Plaza office complex. One attraction was the building’s close proximity to U.S. Highway 59.
While Amerigroup is jumping from a 76,000-square-foot building at 6700 West Loop South to the 156,000-square-foot Buffalo Speedway building about four miles away, the company’s new office will be about the same size as the old one.
Ryan Bishop and Preston Young of Stream Realty Partners LP represented Greenway Plaza in lease negotiations. Keith Lloyd of Grubb & Ellis Co. represented Amerigroup. For more information see : www.houstonrealtyadviors.com or www.houstonrealtyadvisors.net
Monday, October 6, 2008
RiverBend takes a turn for expansionFirst mixed-use project in League City grows from $80 million to $208 million
Houston Business Journal - by Allison Wollam Reporter
Three years after announcing plans for the first mixed-use development in League City, Deerwood Development Group Inc. has finally received approval for the planned urban development of their waterfront project, which has grown from an $80 million venture to a $208 million undertaking.
League City’s Planning and Zoning Committee approved the new PUD last month, which increased the original density of the RiverBend on Clear Creek project.
Darell Schmidt, president of Colorado-based Deerwood, which will sell pieces of the project with entitlements and improvements to other developers, says since the original PUD was approved back in April 2006 the footprint has changed dramatically.
“Over the last two years, we did our homework, asked a lot of questions and conducted multiple market and engineering studies ...,” he says.
Original plans for RiverBend called for four restaurant sites, two 100-room hotels, a marina and retail sites. The community was also slated to include 10 office pads which could accommodate residential lofts above the office space, as well as a 12-acre site for residential development.
Now, the denser project calls for 320,000 square feet of commercial office and medical space; 50,000 square feet of retail; a 142-room hotel and convention center; 16,000 square feet of restaurant space; 750 multifamily residential units — to include apartments, townhomes, condominiums and lofts — above the retail/office space; and an 80-slip day marina for public and private use.
Deerwood was able to eliminate most of the property’s flood plain, thereby making the site more fully developable to allow for the expanded uses.
Schmidt says the RiverBend site, located on the south shore of Clear Creek directly off of Interstate 45 and FM 518, did not sustain any major damage from Hurricane Ike. Deerwood is currently bringing in 140,000 cubic yards — which is equivalent to 87 feet tall — of dirt to raise the site, based on Federal Emergency Management Agency requirements.
Daren Schmidt, Darell Schmidt’s son and director of development for Deerwood, recruited League City-based Texcor Construction Services Inc. to perform mass grading on the development. Texcor began grading work in July.
Around the bend
Schmidt says the primary objective for RiverBend from the start was to preserve the wetlands adjacent to the waterfront.
The revised RiverBend project calls for a walkable, open-air model that is organized around a public plaza. Nature trails surround the plaza and pass through the wetlands on the water’s edge and connect to the marina on a lagoon.
Tony Allender, director of planning and development for the City of League City, says RiverBend has the potential to offer a first-class destination at the front door of League City.
“RiverBend will serve as a great economic catalyst for the additional improvements we want to see in the city,” he says. “It adds significant value and strength to the surrounding retail and local market.”
Allender says Deerwood worked with his staff to come up with ideas to minimize the traffic impact from the project.
A recent traffic impact analysis outlined several planned improvements to the corridors surrounding the site by the Texas Department of Transportation, including the NASA Road bypass and the State Highway 96 interchange. In addition, a ramp reversal near FM 518 will be installed, as well as a third lane on the I-45 feeder roads.
Once completed, this road work is expected to improve the site’s ability to handle the existing and projected traffic, Schmidt says. He believes the increased value of the project and design of the new site plan will make RiverBend more attractive to users. for more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Three years after announcing plans for the first mixed-use development in League City, Deerwood Development Group Inc. has finally received approval for the planned urban development of their waterfront project, which has grown from an $80 million venture to a $208 million undertaking.
League City’s Planning and Zoning Committee approved the new PUD last month, which increased the original density of the RiverBend on Clear Creek project.
Darell Schmidt, president of Colorado-based Deerwood, which will sell pieces of the project with entitlements and improvements to other developers, says since the original PUD was approved back in April 2006 the footprint has changed dramatically.
“Over the last two years, we did our homework, asked a lot of questions and conducted multiple market and engineering studies ...,” he says.
Original plans for RiverBend called for four restaurant sites, two 100-room hotels, a marina and retail sites. The community was also slated to include 10 office pads which could accommodate residential lofts above the office space, as well as a 12-acre site for residential development.
Now, the denser project calls for 320,000 square feet of commercial office and medical space; 50,000 square feet of retail; a 142-room hotel and convention center; 16,000 square feet of restaurant space; 750 multifamily residential units — to include apartments, townhomes, condominiums and lofts — above the retail/office space; and an 80-slip day marina for public and private use.
Deerwood was able to eliminate most of the property’s flood plain, thereby making the site more fully developable to allow for the expanded uses.
Schmidt says the RiverBend site, located on the south shore of Clear Creek directly off of Interstate 45 and FM 518, did not sustain any major damage from Hurricane Ike. Deerwood is currently bringing in 140,000 cubic yards — which is equivalent to 87 feet tall — of dirt to raise the site, based on Federal Emergency Management Agency requirements.
Daren Schmidt, Darell Schmidt’s son and director of development for Deerwood, recruited League City-based Texcor Construction Services Inc. to perform mass grading on the development. Texcor began grading work in July.
Around the bend
Schmidt says the primary objective for RiverBend from the start was to preserve the wetlands adjacent to the waterfront.
The revised RiverBend project calls for a walkable, open-air model that is organized around a public plaza. Nature trails surround the plaza and pass through the wetlands on the water’s edge and connect to the marina on a lagoon.
Tony Allender, director of planning and development for the City of League City, says RiverBend has the potential to offer a first-class destination at the front door of League City.
“RiverBend will serve as a great economic catalyst for the additional improvements we want to see in the city,” he says. “It adds significant value and strength to the surrounding retail and local market.”
Allender says Deerwood worked with his staff to come up with ideas to minimize the traffic impact from the project.
A recent traffic impact analysis outlined several planned improvements to the corridors surrounding the site by the Texas Department of Transportation, including the NASA Road bypass and the State Highway 96 interchange. In addition, a ramp reversal near FM 518 will be installed, as well as a third lane on the I-45 feeder roads.
Once completed, this road work is expected to improve the site’s ability to handle the existing and projected traffic, Schmidt says. He believes the increased value of the project and design of the new site plan will make RiverBend more attractive to users. for more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Saturday, October 4, 2008
Houston Hurricane IKE meets Bubba and a pick up truck
They come from Arkansas, Florida, and South Carolina and all corners of the United States to help out. They chase disaster after disaster to provide moisture removal, debris removal, and tree & chain saw services. Anyone with a pickup and trailer can go into business to help in the massive disaster cleanup that has besieged our city. It has put pressure on the Federal, State and City to provide services for the influx of these helpers and they in turn fill up the hotel, RV parks and take on office space and ware house space to house their temporary business. We need them, we are glad to have them and the problems they some times bring.
Houston was all ready a tight commercial real estate market prior to the Hurricane Ike. Warehouse rates and office services centers have been leasing space at such a rapid pace that brokers and developers were in high gear to keep up with the demand from the oil & gas services company that have explode here with a price of $120.00 + barrel of oil. Now we have clients who lost there offices in the hurricane competing with the influx of day labor companies and mold remediation companies. It makes a tight market even tighter. Any new project on the drawing board has shut down due to the tight credit market and bank melt down. Will the “NO BANKER LEFT BEHIND BILL” help our city recover is anyone’s guess, you got to remember for very square foot of additional office space the major oil & gas firm commit to, all their service companies, such as , accounting, public relations, and law firms must keep up and expand too. This was keeping Houston on track to help pace positive absorption numbers to near record levels again in our 2008 commercial real estate economy:
Mid-Year 2008
A National Leader
Total payroll employment growth grew by 71,100 jobs in Houston--a 2.8% rate of growth--for the 12 months ending April 2008. This far exceeds Houston's long-term average employment growth of 41,000 jobs.
The Houston metro unemployment rate was 3.8% in April 2008, down from 3.9% a year ago and a cyclical high of 7.6% in the summer of 2003. The national unemployment rate was 5.0% in April.
Office Market: Mid-Year 2008
Office Market Conditions Remain Healthy
The Houston office market showed continued growth at mid-year 2008, with the overall vacancy rate ticking down to 10.7%. This expansion reflects the areas's strong job growth and the robust performance of Houston's core industries. Rents continued to rise and as a result, the construction pipeline swelled to 10 million SF, a 32% increase from the previous quarter. Investment sales volume increased after a sluggish first quarter.
Highlights:
· Net absorption of office space in the Houston metro area remained strong, totaling 984,000 SF in the 2nd quarter 2008, bringing 1st half 2008 net absorption to 1.8 million SF. Houston is on pace to slightly exceed the long-term average annual absorption of 3.5 million SF.
· Available sublease space increased by 79,000 SF in the Houston metro area during the 2nd quarter 2008 and represents just 0.6% of standing inventory.
· The overall office vacancy rate in the Houston metro edged down to 10.7% at mid-year 2008, from 10.9% in the 1st quarter and 11.3% a year ago. The direct vacancy rate is 10.1% at 2nd quarter 2008, down from 10.3% in the 1st quarter and 10.5% a year ago.
· There is 10.0 million SF of office space under construction or renovation in the Houston metro area at mid-year 2008, up from 7.6 million SF in the 1st quarter and 5.0 million SF a year ago. 23% pre-leased, up from 19% in the 1st quarter and down from 24% a year ago.
· Houston office deliveries (including renovations) totaled 1.8 million SF in the 1st half of 2008, compared to 3.8 million SF in all of 2007. 74% was leased upon delivery.
· Class A office rents rose by an annualized rate of 13.2% in the 1st half of 2008, while Class B rents rose by an annualized rate of 6.9%. Class A asking rents averaged $27.16/SF, full service; Class B asking rents averaged $19.00/SF, full service.
· Office investment sales totaled $662 million during the 1st half of 2008, down 31% from the $962 million recorded in the same period in 2007. Sales prices averaged $165/SF in the 1st half of 2008, up from the $147/SF in the 1st quarter and $148/SF in 2007.
Industrial Market: Mid-Year 2008
Modest Absorption
Highlights:
· Net absorption of industrial space totaled 1.9 million SF in the 2nd quarter of 2008, bringing the 1st half total to 3.4 million SF, significantly lower than the 7.4 million SF recorded in the 1st half of 2007.
· The overall Houston metro industrial vacancy rate held steady at 5.4% at mid-year 2008 from the previous quarter, but edged down from 5.5% a year ago
· There is 7.1 million SF of industrial space under construction in metro Houston at mid-year 2008, down from 7.4 million SF in the 1st quarter and 7.8 million SF a year ago.
· Deliveries of industrial space in Houston totaled 3.6 million SF in the 1st half of 2008, down from 7.1 million SF delivered in the same period last year.
· Industrial rents held steady in the 1st half of 2008.
· Industrial investment sales volume totaled $79 million in metro Houston in the 2nd quarter of 2008, bringing the 1st half 2008 total to $123 million -- well below the $467 million recorded in the same period last year. Industrial sale prices averaged $120/SF in the 2nd quarter of 2008, compared to $67/SF in the 1st quarter.
Retail Market: Mid-Year 2008
Population and Job Growth Continue to Fuel Retail Demand
Highlights:
· The Houston metro area’s population grew from 4.74 million people in 2000 to 5.54 million in 2006, an increase of 16.9% in six years.
· The Houston metro area gained 7,500 retail jobs over the 12-month period ending April 2008 -- a 2.9% increase. With 262,900 employees in the metro area, the retail industry reflects a thriving local economy, despite a nationwide slowdown in the retail sector.
· The Houston metro area provides its residents with a wide variety of retail options with 31.8 SF of retail space per capita -- well above the national average of 20 SF and third-highest amont U.S. metro markets. Houston's retail inventory will be receiving a boost in the near future with the aid of several high profile developments currently under construction.
· Houston’s retail vacancy decreased to 17.1% in the 1st quarter of 2008 from 17.4% at year-end 2007 and 17.2% one year ago.
· Retail rents experienced a slight decrease in the 1st quarter of 2008 to $1.62/SF/month from $1.63/SF/month at year-end 2007, a quarterly decrease of 0.6%.
· Retail sales in 2007 totaled a record $83.76 billion in the Houston area, up 6.9% from 2006. From 1997 through 2007, retail sales have grown at a compounded 2.5% each year.
Houston and NASA put a man on the moon from this town, no large or small hurricane will stop the entrepreneur sprit that drives this town forward into the 21st century. We have been dodging the hurricane bullet for several years now, it was just our turn and the city withstood the pain then showed the true metal of what we are made of and why people come from all over the world to live and work here. We are use to these growing problems in a modern day city that has become our 4th largest. The old bumper sicker “ GOD PLEASE SEND US ANOTHER OIL BOOM, WE PROMISE NOT TO SCREW THIS ONE UP” are coming back around on the bumpers of cars here. We pray and hope all of Hurricane Ike’s wrath on our fair city will just blow through as we pick up and move forward again because Texas loves a bubba, no matter where they come from!!
For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Houston was all ready a tight commercial real estate market prior to the Hurricane Ike. Warehouse rates and office services centers have been leasing space at such a rapid pace that brokers and developers were in high gear to keep up with the demand from the oil & gas services company that have explode here with a price of $120.00 + barrel of oil. Now we have clients who lost there offices in the hurricane competing with the influx of day labor companies and mold remediation companies. It makes a tight market even tighter. Any new project on the drawing board has shut down due to the tight credit market and bank melt down. Will the “NO BANKER LEFT BEHIND BILL” help our city recover is anyone’s guess, you got to remember for very square foot of additional office space the major oil & gas firm commit to, all their service companies, such as , accounting, public relations, and law firms must keep up and expand too. This was keeping Houston on track to help pace positive absorption numbers to near record levels again in our 2008 commercial real estate economy:
Mid-Year 2008
A National Leader
Total payroll employment growth grew by 71,100 jobs in Houston--a 2.8% rate of growth--for the 12 months ending April 2008. This far exceeds Houston's long-term average employment growth of 41,000 jobs.
The Houston metro unemployment rate was 3.8% in April 2008, down from 3.9% a year ago and a cyclical high of 7.6% in the summer of 2003. The national unemployment rate was 5.0% in April.
Office Market: Mid-Year 2008
Office Market Conditions Remain Healthy
The Houston office market showed continued growth at mid-year 2008, with the overall vacancy rate ticking down to 10.7%. This expansion reflects the areas's strong job growth and the robust performance of Houston's core industries. Rents continued to rise and as a result, the construction pipeline swelled to 10 million SF, a 32% increase from the previous quarter. Investment sales volume increased after a sluggish first quarter.
Highlights:
· Net absorption of office space in the Houston metro area remained strong, totaling 984,000 SF in the 2nd quarter 2008, bringing 1st half 2008 net absorption to 1.8 million SF. Houston is on pace to slightly exceed the long-term average annual absorption of 3.5 million SF.
· Available sublease space increased by 79,000 SF in the Houston metro area during the 2nd quarter 2008 and represents just 0.6% of standing inventory.
· The overall office vacancy rate in the Houston metro edged down to 10.7% at mid-year 2008, from 10.9% in the 1st quarter and 11.3% a year ago. The direct vacancy rate is 10.1% at 2nd quarter 2008, down from 10.3% in the 1st quarter and 10.5% a year ago.
· There is 10.0 million SF of office space under construction or renovation in the Houston metro area at mid-year 2008, up from 7.6 million SF in the 1st quarter and 5.0 million SF a year ago. 23% pre-leased, up from 19% in the 1st quarter and down from 24% a year ago.
· Houston office deliveries (including renovations) totaled 1.8 million SF in the 1st half of 2008, compared to 3.8 million SF in all of 2007. 74% was leased upon delivery.
· Class A office rents rose by an annualized rate of 13.2% in the 1st half of 2008, while Class B rents rose by an annualized rate of 6.9%. Class A asking rents averaged $27.16/SF, full service; Class B asking rents averaged $19.00/SF, full service.
· Office investment sales totaled $662 million during the 1st half of 2008, down 31% from the $962 million recorded in the same period in 2007. Sales prices averaged $165/SF in the 1st half of 2008, up from the $147/SF in the 1st quarter and $148/SF in 2007.
Industrial Market: Mid-Year 2008
Modest Absorption
Highlights:
· Net absorption of industrial space totaled 1.9 million SF in the 2nd quarter of 2008, bringing the 1st half total to 3.4 million SF, significantly lower than the 7.4 million SF recorded in the 1st half of 2007.
· The overall Houston metro industrial vacancy rate held steady at 5.4% at mid-year 2008 from the previous quarter, but edged down from 5.5% a year ago
· There is 7.1 million SF of industrial space under construction in metro Houston at mid-year 2008, down from 7.4 million SF in the 1st quarter and 7.8 million SF a year ago.
· Deliveries of industrial space in Houston totaled 3.6 million SF in the 1st half of 2008, down from 7.1 million SF delivered in the same period last year.
· Industrial rents held steady in the 1st half of 2008.
· Industrial investment sales volume totaled $79 million in metro Houston in the 2nd quarter of 2008, bringing the 1st half 2008 total to $123 million -- well below the $467 million recorded in the same period last year. Industrial sale prices averaged $120/SF in the 2nd quarter of 2008, compared to $67/SF in the 1st quarter.
Retail Market: Mid-Year 2008
Population and Job Growth Continue to Fuel Retail Demand
Highlights:
· The Houston metro area’s population grew from 4.74 million people in 2000 to 5.54 million in 2006, an increase of 16.9% in six years.
· The Houston metro area gained 7,500 retail jobs over the 12-month period ending April 2008 -- a 2.9% increase. With 262,900 employees in the metro area, the retail industry reflects a thriving local economy, despite a nationwide slowdown in the retail sector.
· The Houston metro area provides its residents with a wide variety of retail options with 31.8 SF of retail space per capita -- well above the national average of 20 SF and third-highest amont U.S. metro markets. Houston's retail inventory will be receiving a boost in the near future with the aid of several high profile developments currently under construction.
· Houston’s retail vacancy decreased to 17.1% in the 1st quarter of 2008 from 17.4% at year-end 2007 and 17.2% one year ago.
· Retail rents experienced a slight decrease in the 1st quarter of 2008 to $1.62/SF/month from $1.63/SF/month at year-end 2007, a quarterly decrease of 0.6%.
· Retail sales in 2007 totaled a record $83.76 billion in the Houston area, up 6.9% from 2006. From 1997 through 2007, retail sales have grown at a compounded 2.5% each year.
Houston and NASA put a man on the moon from this town, no large or small hurricane will stop the entrepreneur sprit that drives this town forward into the 21st century. We have been dodging the hurricane bullet for several years now, it was just our turn and the city withstood the pain then showed the true metal of what we are made of and why people come from all over the world to live and work here. We are use to these growing problems in a modern day city that has become our 4th largest. The old bumper sicker “ GOD PLEASE SEND US ANOTHER OIL BOOM, WE PROMISE NOT TO SCREW THIS ONE UP” are coming back around on the bumpers of cars here. We pray and hope all of Hurricane Ike’s wrath on our fair city will just blow through as we pick up and move forward again because Texas loves a bubba, no matter where they come from!!
For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Thursday, October 2, 2008
3 BUILDING COMPLEX POST OAK CENTRAL SELLS
CB Richard Ellis Investors is said to be paying $250 million for Post Oak Central, a 1.3 million sf office complex in Houston.The Los Angeles investment manager is buying the three-building complex from a venture between JPMorgan Asset Management, GE Pension Trust and Morgan Stanley Real Estate, which had offered it through Holliday Fenoglio Fowler.A CBRE spokesperson declined to comment on the transaction.CBRE is paying roughly $192/sf for the property, which is expected to result in a capitalization rate of 5.12%, based on the $12.8 million of net operating income that Post Oak Central is expected to produce this year.The purchase is expected to be completed by the end of the year. Post Oak Central would be the second largest office transaction in Houston this year behind Hines REIT's $271.5 million acquisition of Williams Tower in March. JPMorgan and GE Pension entered their investments in Post Oak Central in 2004 when they bought a total interest of 76%. Morgan Stanley had assumed its stake through its acquisition of Crescent last year.The property sits on 17 acres at 1980, 1990 and 2000 Post Oak Blvd. in Houston's Galleria submarket. It is 92% leased to tenants that include Apache Oil Co., Stewart Tile and Suez, an energy company.The property has 86,500 sf of retail space that is leased to a fitness center, salon, restaurant and bank.Post Oak Central is encumbered by $97.5 million of mortgage debt that was securitized via Banc of America Commercial Mortgage, Inc., 2004-6. It carries a coupon of 5.12% and matures in December 2014. fOR MORE INFORMATION SEE : www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
6 Clear Lake Buildings sell at once!
Six office buildings in the Clear Lake area are under new ownership after an abbreviated marketing campaign.
John Cole of Twenty Twenty Properties Inc. recently acquired the 226,000-square-foot office portfolio from KBS Realty Advisors for an undisclosed amount.
“The marketing campaign had just begun when a very compelling preemptive offer was received and the ownership decided to take it,” said Dan Miller of Holliday Fenoglio Fowler LP, who along with colleague Marty Hogan represented KBS in the transaction.
The properties include the four-building Armand Plaza at 16441 Space Center Blvd., which is 100 percent leased; Camino Center I at 17629 El Camino Real, which is 92 percent leased; and Camino Center II at 17625 El Camino Real, which is nearly 75 percent leased.
Susan Hill of Holliday Fenoglio Fowler arranged acquisition financing through Viewpoint Bank for Twenty Twenty Properties, which owns, manages and leases 20 office buildings in the Houston area. For more information see : www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
John Cole of Twenty Twenty Properties Inc. recently acquired the 226,000-square-foot office portfolio from KBS Realty Advisors for an undisclosed amount.
“The marketing campaign had just begun when a very compelling preemptive offer was received and the ownership decided to take it,” said Dan Miller of Holliday Fenoglio Fowler LP, who along with colleague Marty Hogan represented KBS in the transaction.
The properties include the four-building Armand Plaza at 16441 Space Center Blvd., which is 100 percent leased; Camino Center I at 17629 El Camino Real, which is 92 percent leased; and Camino Center II at 17625 El Camino Real, which is nearly 75 percent leased.
Susan Hill of Holliday Fenoglio Fowler arranged acquisition financing through Viewpoint Bank for Twenty Twenty Properties, which owns, manages and leases 20 office buildings in the Houston area. For more information see : www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Tip of the Iceberg: More Banking Problems Could Surface
Bad Real Estate Loans Are at the Core of Financial Market Turmoil and Those Problem Loans are Still Growing
Bailout or no bailout, the country's commercial banks are facing an industry-altering round of consolidations, restructuring and tighter federal regulation as they grapple with confronting nearly a trillion dollars of bad debt. The latest federal government data shows a growing number of failed banks, problem banks and problem loans. And according to private industry research, the federal government data doesn't even begin to reveal the full size of the iceberg under the surface of the financial ocean. In the past few weeks, the financial services industry has already witnessed unprecedented corporate wreckage on Wall Street and an extraordinary transformation of the financial markets. Gone is the independent investment banking industry (Bear Stearns, Lehman Brothers and Merrill Lynch). Re-emerged has been the often-criticized universal banking model in which financial services companies offer both investment services and commercial savings and loans services (Goldman Sachs, Morgan Stanley and Bank of America). And the federal government has virtually taken over the securities markets (Fannie Mae, Freddie Mac), imposed itself into the insurance industry (AIG) and proposed a $700 billion bailout plan for Wall Street. And more of the same may be coming. See related CoStar Advisor coverage by Senior News Editor Randyl Drummer: Wall Street Crisis Hammers Development Financing The Top of the Iceberg: Current State of Banking The Federal Deposit Insurance Corp. (FDIC) has been called in as receiver for 11 banks so this year through today, and the federal regulator expects bank failures in the near term to increase. The FDIC's "problem list" of banks grew to 117 institutions as of June 30, up from 90 at the end of the first quarter. That is largest number on the list since the middle of 2003. Total assets of problem institutions increased from $26 billion to $78 billion. A concentration in real estate has been a common theme among the bank failures in 2008. Rising levels of troubled real estate loans has led many institutions to increase their provisions for loan losses. Loss provisions at the end of the second quarter totaled $50.2 billion, more than four times the $11.4 billion the industry set aside in the second quarter of 2007. Almost a third of the industry's net operating revenue went to building up loan-loss reserves and not to making more loans. However, for the ninth consecutive quarter, increases in delinquent loans surpassed the growth in reserves. The amount of delinquent loans and leases (90 days or more past due or in nonaccrual status) increased by $26.7 billion (20%) during the second quarter, following a $26.2 billion increase in the first quarter and a $27 billion increase in the fourth quarter of 2007. Almost 90% of the increase in delinquencies in the last three quarters consisted of real estate loans. Also, the net charge-off rate of bad loans has risen to its highest level since 1991. To be fair, the primary culprit behind the banking mess has been residential real estate loans and most of the government action and media attention has been focused on problems in the housing market. However, banks are beginning to see an increase in troubled commercial real estate loans, even though the ratio of these troubled assets is far less than in the early 1990s during the last major upheaval in the financial markets. The total amount of multifamily and commercial real estate loans delinquent more than 30 days at the nation's commercial banks is up 65% from June 30, 2007, to more than $20 billion. The amount of commercial properties taken over by banks through foreclosures is up 23% from the second quarter 2007 to $14 billion. Current delinquent commercial real estate loans represent only 4.24% of all outstanding CRE loans at commercial banks. While that is the highest it has been since 1995, is not even close to the peak of 12.07% at the start of 1991. And year to date, commercial banks have charged off more than $870 million in commercial real estate loans and recovered only $79 million of that amount. The current charge off rate for all commercial real estate loans is still less than 1% (0.93%) and that compares to high of 2.54% in the second quarter of 1992. Private Research Peers Beneath the Surface Martin D. Weiss, Ph.D. and president of Weiss Research Inc. sent a report to Congress this past week that painted a more drastic picture than current conditions. Weiss said there are 1,479 U.S. banks and 158 U.S. thrifts at risk of failure, with total assets of $3.2 trillion - more than four times the amount of the proposed federal bailout and 41 times the amount of assets of banks on the FDIC's list of troubled institutions. "There should be no illusion that the $700 billion estimate proposed by the administration will be enough to end the crisis," Weiss said in announcing his report. "Nor should there be any false hopes that the market for U.S. government securities can absorb the additional burden of a $700 billion bailout without putting major upward pressure on U.S. interest rates, aggravating the very debt crisis that the government is seeking to alleviate." The bailout plan whether it passes Congress or not, is an insufficient step to deal with our current credit crisis, agreed Campbell R. Harvey, professor of finance, The Fuqua School of Business, Duke University. "While most of the focus has been on Wall Street, there are hundreds, if not a thousand banks, that may be insolvent if their assets, which include capital market instruments, were marked-to-market. Over the next six months, we are faced with the specter of a massive number of bank failures," Harvey wrote in a report this week entitled: The Financial Crisis of 2008: What Needs To Happen after TARP. TARP stands for Troubled Asset Relief Program, the moniker given to the U.S. Treasury's bailout program. As a way of comparison, Harvey noted that the Resolution Trust Corp. initiated in 1989 took over and disposed of more that $550 billion in assets in its lifetime, which is roughly $900 billion in 2008 dollars, he added. "Today's situation is larger in scale than the S&L crisis. The combined assets of just two firms, Lehman Brothers and Washington Mutual, $946 billion, exceeds the assets targeted during the S&L crisis," Harvey said. "Note the total assets of Wachovia Corp. were $812 billion as of June 30, 2008." "It is naïve to think that the $700 billion TARP program will solve our financial crisis," Harvey added. What's on the Horizon New research this week from TowerGroup found that the weeks and months to come will bring more mergers and restructuring for the US banking industry, even as the drive for greater regulation, transparency, and cooperation continues to be debated. At the same time, financial institutions will return to a focus on more traditional banking activities, as credit terms become tighter, capital is withheld from the market, and economic growth is further stifled. TowerGroup said it believes the banking industry is on the verge of a new hierarchy. Strong banks will press their advantage with new products and services; new competitors will enter the market as the industry industrializes; and the need for greater integration across client databases, risk management capabilities, and products will cause bankers to realize they must abandon the cultural silos that have hindered their progress toward make the whole greater than the sum of its parts. "This market crisis, the worst in our long-term collective memory, is not over," Standard & Poor's Ratings Services wrote in a report this week entitled: When the Smoke Clears, What Happens Next with U.S. Financial Institutions. "Although we anticipate more difficulties, we should still begin to consider what the financial institutions industry may look like when the smoke clears. We believe the landscape is likely to be vastly different, but the changes could contribute to a healthier and more fiscally sound U.S. financial system." In the short term, the Darwinian effect of survival of the fittest could eliminate the weakest players and lead to less robust competition but could also bring an element of stability, S&P reported. "We can envision a major overhaul of the established, 75-year-old regulatory regime," S&P wrote. "A final outcome seems to be the possibility of the Federal Reserve playing a central role in examining and supervising financial institutions, as well as promoting the safety and soundness of the financial system. The national regulators may turn their sights on containing systemic risk if another large institution fails, regulating hedge funds and private equity funds, and regulating the over-the-counter market for trading complex financial instruments." for more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Bailout or no bailout, the country's commercial banks are facing an industry-altering round of consolidations, restructuring and tighter federal regulation as they grapple with confronting nearly a trillion dollars of bad debt. The latest federal government data shows a growing number of failed banks, problem banks and problem loans. And according to private industry research, the federal government data doesn't even begin to reveal the full size of the iceberg under the surface of the financial ocean. In the past few weeks, the financial services industry has already witnessed unprecedented corporate wreckage on Wall Street and an extraordinary transformation of the financial markets. Gone is the independent investment banking industry (Bear Stearns, Lehman Brothers and Merrill Lynch). Re-emerged has been the often-criticized universal banking model in which financial services companies offer both investment services and commercial savings and loans services (Goldman Sachs, Morgan Stanley and Bank of America). And the federal government has virtually taken over the securities markets (Fannie Mae, Freddie Mac), imposed itself into the insurance industry (AIG) and proposed a $700 billion bailout plan for Wall Street. And more of the same may be coming. See related CoStar Advisor coverage by Senior News Editor Randyl Drummer: Wall Street Crisis Hammers Development Financing The Top of the Iceberg: Current State of Banking The Federal Deposit Insurance Corp. (FDIC) has been called in as receiver for 11 banks so this year through today, and the federal regulator expects bank failures in the near term to increase. The FDIC's "problem list" of banks grew to 117 institutions as of June 30, up from 90 at the end of the first quarter. That is largest number on the list since the middle of 2003. Total assets of problem institutions increased from $26 billion to $78 billion. A concentration in real estate has been a common theme among the bank failures in 2008. Rising levels of troubled real estate loans has led many institutions to increase their provisions for loan losses. Loss provisions at the end of the second quarter totaled $50.2 billion, more than four times the $11.4 billion the industry set aside in the second quarter of 2007. Almost a third of the industry's net operating revenue went to building up loan-loss reserves and not to making more loans. However, for the ninth consecutive quarter, increases in delinquent loans surpassed the growth in reserves. The amount of delinquent loans and leases (90 days or more past due or in nonaccrual status) increased by $26.7 billion (20%) during the second quarter, following a $26.2 billion increase in the first quarter and a $27 billion increase in the fourth quarter of 2007. Almost 90% of the increase in delinquencies in the last three quarters consisted of real estate loans. Also, the net charge-off rate of bad loans has risen to its highest level since 1991. To be fair, the primary culprit behind the banking mess has been residential real estate loans and most of the government action and media attention has been focused on problems in the housing market. However, banks are beginning to see an increase in troubled commercial real estate loans, even though the ratio of these troubled assets is far less than in the early 1990s during the last major upheaval in the financial markets. The total amount of multifamily and commercial real estate loans delinquent more than 30 days at the nation's commercial banks is up 65% from June 30, 2007, to more than $20 billion. The amount of commercial properties taken over by banks through foreclosures is up 23% from the second quarter 2007 to $14 billion. Current delinquent commercial real estate loans represent only 4.24% of all outstanding CRE loans at commercial banks. While that is the highest it has been since 1995, is not even close to the peak of 12.07% at the start of 1991. And year to date, commercial banks have charged off more than $870 million in commercial real estate loans and recovered only $79 million of that amount. The current charge off rate for all commercial real estate loans is still less than 1% (0.93%) and that compares to high of 2.54% in the second quarter of 1992. Private Research Peers Beneath the Surface Martin D. Weiss, Ph.D. and president of Weiss Research Inc. sent a report to Congress this past week that painted a more drastic picture than current conditions. Weiss said there are 1,479 U.S. banks and 158 U.S. thrifts at risk of failure, with total assets of $3.2 trillion - more than four times the amount of the proposed federal bailout and 41 times the amount of assets of banks on the FDIC's list of troubled institutions. "There should be no illusion that the $700 billion estimate proposed by the administration will be enough to end the crisis," Weiss said in announcing his report. "Nor should there be any false hopes that the market for U.S. government securities can absorb the additional burden of a $700 billion bailout without putting major upward pressure on U.S. interest rates, aggravating the very debt crisis that the government is seeking to alleviate." The bailout plan whether it passes Congress or not, is an insufficient step to deal with our current credit crisis, agreed Campbell R. Harvey, professor of finance, The Fuqua School of Business, Duke University. "While most of the focus has been on Wall Street, there are hundreds, if not a thousand banks, that may be insolvent if their assets, which include capital market instruments, were marked-to-market. Over the next six months, we are faced with the specter of a massive number of bank failures," Harvey wrote in a report this week entitled: The Financial Crisis of 2008: What Needs To Happen after TARP. TARP stands for Troubled Asset Relief Program, the moniker given to the U.S. Treasury's bailout program. As a way of comparison, Harvey noted that the Resolution Trust Corp. initiated in 1989 took over and disposed of more that $550 billion in assets in its lifetime, which is roughly $900 billion in 2008 dollars, he added. "Today's situation is larger in scale than the S&L crisis. The combined assets of just two firms, Lehman Brothers and Washington Mutual, $946 billion, exceeds the assets targeted during the S&L crisis," Harvey said. "Note the total assets of Wachovia Corp. were $812 billion as of June 30, 2008." "It is naïve to think that the $700 billion TARP program will solve our financial crisis," Harvey added. What's on the Horizon New research this week from TowerGroup found that the weeks and months to come will bring more mergers and restructuring for the US banking industry, even as the drive for greater regulation, transparency, and cooperation continues to be debated. At the same time, financial institutions will return to a focus on more traditional banking activities, as credit terms become tighter, capital is withheld from the market, and economic growth is further stifled. TowerGroup said it believes the banking industry is on the verge of a new hierarchy. Strong banks will press their advantage with new products and services; new competitors will enter the market as the industry industrializes; and the need for greater integration across client databases, risk management capabilities, and products will cause bankers to realize they must abandon the cultural silos that have hindered their progress toward make the whole greater than the sum of its parts. "This market crisis, the worst in our long-term collective memory, is not over," Standard & Poor's Ratings Services wrote in a report this week entitled: When the Smoke Clears, What Happens Next with U.S. Financial Institutions. "Although we anticipate more difficulties, we should still begin to consider what the financial institutions industry may look like when the smoke clears. We believe the landscape is likely to be vastly different, but the changes could contribute to a healthier and more fiscally sound U.S. financial system." In the short term, the Darwinian effect of survival of the fittest could eliminate the weakest players and lead to less robust competition but could also bring an element of stability, S&P reported. "We can envision a major overhaul of the established, 75-year-old regulatory regime," S&P wrote. "A final outcome seems to be the possibility of the Federal Reserve playing a central role in examining and supervising financial institutions, as well as promoting the safety and soundness of the financial system. The national regulators may turn their sights on containing systemic risk if another large institution fails, regulating hedge funds and private equity funds, and regulating the over-the-counter market for trading complex financial instruments." for more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
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