Friday, February 25, 2011

Commercial vacancy rates to decline but rent recovery delayed

Commercial vacancy rates to decline but rent recovery delayed

WASHINGTON – Feb. 25, 2011 – A stabilization trend is taking place in commercial real estate sectors, but in most markets rent will remain soft except for multifamily rentals, according to the National Association of Realtors® (NAR).

Lawrence Yun, NAR chief economist, said a pullback in construction is helping stabilize the market. “Very limited construction of new commercial real estate over the past few years has essentially fixed the supply of available space,” he said. “This means vacancy rates could fall quickly from any increase in demand for commercial space.”

From the first quarter of this year to the first quarter of 2012, NAR expects vacancy rates to decline 0.5 percentage point in the office sector, 1.3 points in industrial real estate, 0.1 point in the retail sector and 0.9 percentage point in the multifamily rental market.

“Even with declining vacancy rates, rents are not likely to turn positive in most markets until next year, outside of multifamily rental properties,” Yun said. For example, office rents are forecast to fall 1.8 percent this year before turning higher by 4.0 percent in 2012.

“Apartment rent increases are expected to accelerate from job creation leading to new household formation, particularly among the young adult population who will seek their own housing arrangements – many will be leaving their parents’ homes or choose to live with fewer roommates,” Yun said.

Average apartment rent is projected to grow 3.4 percent this year and another 4.2 percent in 2012.
“Rising apartment rent in combination with rising oil prices could push the overall inflation rate beyond a comfort level, which could then force the Federal Reserve to raise interest rates later this year or early in 2012,” Yun added.

The Society of Industrial and Office Realtors in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 360 local market experts1, shows a notable improvement in market fundamentals. The SIOR index, measuring the impact of 10 variables, rose 8.1 percentage points to 50.7 in the fourth quarter, the largest quarterly gain in five years, and is at the highest level since the fall of 2008. However, the index is well below a level of 100 that represents a balanced marketplace. This is the fifth consecutive quarterly improvement following nearly three years of decline, but the last time the index was at the 100 level was in the third quarter of 2007.

Seventy-eight percent of SIOR participants expect improvements in the office and industrial sectors for the first quarter of this year.

There has been an increase of liquidity in Commercial Mortgage Backed Securities, which is helping to open the commercial market to more property transactions; commercial real estate sales had been stalled over the past few years with excessively tight credit conditions. In terms of development acquisitions, it remains a buyer’s market for those with cash or who can obtain credit financing.

NAR’s latest Commercial Real Estate Outlook offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. CBRE Econometric Advisors provided historic data.

OFFICE MARKETS
Vacancy rates in the office sector are forecast to decline from 16.5 percent in the first quarter of this year to 16.0 percent in the first quarter of 2012.

The markets with the lowest office vacancy rates currently are New York City and Honolulu, with vacancies in the 8 to 9 percent range.

In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be 14.5 million square feet in 2011.

INDUSTRIAL MARKETS
Industrial vacancy rates are projected to decline from 14.2 percent in the current quarter to 12.9 percent in the first quarter of 2012.

At present, the areas with the lowest industrial vacancy rates are Los Angeles and Salt Lake City, with vacancies of 7.5 percent.

Annual industrial rent is likely to decline 2.5 percent in 2011, before rising 3.0 percent next year. Net absorption of industrial space in 58 markets tracked should be 127.5 million square feet in 2011.

RETAIL MARKETS
Retail vacancy rates are expected to slip from 13.0 percent in the first quarter of this year to 12.9 percent in the first quarter of 2012.

Markets with the lowest retail vacancy rates currently include San Francisco; Miami; Honolulu; and Long Island, N.Y., all with vacancies in the 7 to 8 percent range.

Average retail rent is seen to decline 0.9 percent in 2011, then rising 0.7 percent next year. Net absorption of retail space in 53 tracked markets is projected to be 4.8 million in 2011.

MULTIFAMILY MARKETS
The apartment rental market – multifamily housing – is tightening as the economy improves. Multifamily vacancy rates are forecast to decline from 5.8 percent in the current quarter to 4.9 percent in the first quarter of 2012.

Areas with the lowest multifamily vacancy rates presently are San Jose, Calif.; Pittsburgh; and Newark, N.J, with vacancies in a range around 3 percent.

Multifamily net absorption should be 207,000 units in 59 tracked metro areas in 2011.

The NAR Research Division publishes the Commercial Real Estate Outlook for the commercial community. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.

The NAR commercial components include commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and the NAR commercial affiliate organizations – CCIM Institute, Institute of Real Estate Management, Realtors Land Institute, Society of Industrial and Office Realtors, and Counselors of Real Estate.

Approximately 79,000 NAR and institute affiliate members specialize in commercial brokerage services, and an additional 263,000 members offer commercial real estate as a secondary business.

© 2011 Florida Realtors®
Source:  Florida Realtors

Monday, February 21, 2011

SBA program helps with real estate debt

SBA program helps with real estate debt

Wichita Business Journal - by Kent Hoover, Washington Bureau Chief
Date: Monday, February 21, 2011, 8:20am CST

The Small Business Administration finally rolled out a loan program that could help business owners who face a looming balloon payment on their commercial real estate loans.
Beginning Feb. 28, small-business owners can use the SBA’s 504 program to refinance their commercial mortgages if they face a balloon payment before Dec. 31, 2012. The SBA may later open this option to other business owners.
“We are making this initial restriction to make sure our funding goes first to small businesses with the most need,” said Steve Smits, the SBA’s associate administrator of capital access.

Real Estate Loans

SBA’s 504 loans primarily are used for real estate, but until the Small Business Jobs Act was enacted in late September, they couldn’t be used for refinancing unless a business also was expanding.
Congress added a refinancing option to the 504 program because of the crisis many business owners face due to declining real estate values and the tightening of the commercial real estate financing market. When they took out their current mortgages, most business owners assumed they could refinance the loans before the big balloon payment on the mortgage came due. That’s no longer possible for many of them.

The SBA’s loan programs were created to fill gaps in the lending market for small businesses, so that’s why Congress thought it was appropriate to come to the rescue of these business owners by making $15 billion worth of refinancing available through the 504 program. Since 504 loans, which are made by SBA-approved certified development companies, are paired with first mortgages from conventional lenders, the program will generate nearly $34 billion in total project refinancing over the next two years.

The SBA estimates as many as 20,000 small businesses will take advantage of this refinancing program.
“The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years,” SBA Administrator Karen Mills said. “As a result, even small businesses that are performing well and making their payments on time could face foreclosure because of the difficulties they face in refinancing and restructuring their mortgage debt. This temporary program is another tool SBA can provide to help these small businesses remain viable and protect jobs.”

Borrowers must kick in at least 10 percent of equity in order to qualify for these 504 loans. They will be able to refinance up to 90 percent of the current appraised property value or 100 percent of the outstanding mortgage, whichever is lower, plus eligible refinancing costs. The loans can’t be used for other business expenses.

Applicants also have to be current on their existing loans, and a new independent appraisal will be required on the properties.

Taxpayers won’t be on the hook if these new 504 loans default. All of the costs of this refinancing program will be covered by fees assessed on the loans.

The National Association of Development Companies, which represents the economic development organizations that make 504 loans, expect brisk demand for the refinancing program.

“We have been receiving at least 10 inquiries a week since the refinance provision was announced as part of the Small Business Jobs Act in September,” said Nadco president Chris Crawford. “Small businesses and banks have been clamoring to take advantage of this new, more affordable refinance option as a means to hold on to critical business properties. In many cases, this will mean saving a thriving business from closure if it could not refinance maturing debt. “

SBA's Kansas District Office is located at 271 W. Third St. N., Ste. 2500, in Wichita.

Wednesday, February 16, 2011

David Lynn’s Top 10 Challenges Facing Commercial Real Estate in 2011

David Lynn’s Top 10 Challenges Facing Commercial Real Estate in 2011

Source: nreionline.com
By:  David J. Lynn, Ph.D., Contributing Columnist
Date: Feb 7, 2011 9:41 AM

As the economy shows signs of substantial improvement, the commercial real estate industry is emerging from a transitional phase in 2010 to a recovery stage in 2011. Institutional-quality real estate assets in primary markets have begun to stabilize and appear to be poised for recovery.

However, several uncertainties at both the macro and fundamental levels remain. Despite these uncertainties, we are sanguine about the outlook over the next 12 months for institutional-quality real estate and believe that the commercial real estate recovery will continue to gather positive momentum throughout the remainder of 2011. Here we highlight the top 10 challenges facing our industry in 2011:

1. Economic recovery — Recent evidence suggests that the U.S. economic recovery is gaining strength. Corporate earnings are strong, with record amounts of cash on firms’ balance sheets. Consumers are increasingly confident about the future and are opening their wallets for spending. Holiday retail sales in 2010 jumped 5.5% from 2009, the largest increase since 2006.

As of December 2010, the PMI Manufacturing Index has increased for 17 consecutive months. Nonetheless, we expect a sustained recovery, but not a particularly robust one. The current general consensus forecast for GDP growth in 2011 is 3.2%.

2. Residential housing market — With the help of government tax incentives, the housing market has shown some signs of stability. However, unlike past recoveries, this sector has not been a positive contributor to GDP growth so far.

Rising delinquencies and looming foreclosures could flood the market with additional inventory, causing another 5% to 7% decline in home prices in 2011. With rising mortgage rates, we don’t expect to see meaningful nationwide home price appreciation until 2012.

3. Job growth — During the recession of 2008-2009, the economy lost a total of 8.4 million jobs. In 2010, we regained approximately 1.1 million jobs. Private sector employment has shown decent growth. The gain is encouraging, but still not strong enough to bring down the high unemployment rate, which remains too high for a broad-based and robust recovery to take place.

Based on market trends, we believe that businesses will step up hiring in 2011 because of the improved outlook and increased demand. Nonetheless, job recovery will have a long way to go and may not recover to the 2007 peak level until at least mid-2013, according to Moody’s Economy.com.


4. Government and Fed policies — The Federal Reserve’s QE2 program of purchasing $600 billion in long-term Treasuries and the extension of the Bush tax cut program have without a doubt provided a significant short-term boost to business and consumer confidence. Consumer spending is up and stock market indices are on the rise.

However, higher government spending and mounting national debt raise serious concerns of higher taxes, a declining U.S. dollar, and rising inflation down the road. Hence, the exit strategies for the Federal Reserve and the government are critical and may substantially impact the path of U.S. economic growth.

5. Inflation and interest rates — The latest inflation data suggests low inflationary pressure for now. Several factors are contributing to this, including the high unemployment rate, high worker productivity, underutilized manufacturing facilities, and low-cost imports from emerging countries.

Nonetheless, higher inflation is expected, particularly in the next three to five years. Commodity prices have risen substantially due to high growth rates in many developing countries. In the U.S., we are experiencing record money supply, national debt, and federal budget deficits.

These concerns could prompt foreign governments to reduce purchases of U.S. Treasuries. Therefore, in the mid-term, we believe inflationary pressure could increase to the 2.5% to 3% level. However, a rapid rise in the Consumer Price Index is considered unlikely.

Since the Fed’s QE2 announcement on Nov. 3, 2010, interest rates have risen. The 10-year Treasury yield climbed more than 60 basis points between late November 2010 and Jan. 31, 2011 [Figure 1]. A continued rapid increase in interest rates could significantly increase borrowing costs, which could dampen the recovery in the residential housing and commercial real estate markets.





6. European sovereign debt crisis — Since the Greece sovereign debt crisis in April 2010, a few other European countries such as Ireland, Spain, and Portugal have also experienced signs of distress. Our view is that many countries in the European Union (EU) are challenged with structural fiscal issues and it will take drastic actions and an extended period of time to fix these problems.
The austerity measures recently implemented by many EU nations could result in slower economic growth and reduced imports from the U.S. We will likely continue to see headline news regarding European sovereign debt issues over the next few years.


7. Geopolitical risks — A few geopolitical uncertainties are posing potential risks. In particular, tensions between Iran and Israel, conflicts between North and South Korea, and the possibility of a terrorist attack could cause significant volatility in the marketplace and undermine public confidence. Additionally, the demonstrations in Egypt present risks to regional stability and global stock and oil prices. Although Egypt is not an oil-producing nation, it does contribute to the distribution of oil.

8. Capital market environment — The commercial real estate capital markets have improved remarkably over the past 18 months. Lenders, especially life insurers and foreign banks, have re-entered the commercial mortgage market, creating more choices for borrowers as well as lower mortgage rates and higher loan-to-value ratios for high-quality assets.

The commercial mortgage-backed securities (CMBS) market has also shown signs of life with new securitizations totaling $11.6 billion in 2010, a three-fold increase compared with 2009.
With the gradual improvement in financial conditions and less stress in financial institutions, we expect that lenders will increase their risk appetite and be willing to extend more credit in the commercial real estate sector.

The upward trend in the CMBS market should continue, and new securitization volume could reach $40 billion to $50 billion in 2011. However, this amount is still a fraction of $230 billion issued in 2007, the peak of the last real estate boom.

9. Loan maturities — Maturing commercial real estate debt remains a daunting challenge facing the industry. Over $1.1 trillion of debt is scheduled to mature from 2011 through 2014. Many portfolios and assets are in dire need of equity to recapitalize, creating pressure on the part of owners to sell, likely at distressed pricing.
However, as a result of “pretend and extend” practices by lenders, we have not seen many distressed sales. It is estimated that approximately $400 billion of new equity is needed for recapitalization. We believe that most lenders are under little pressure to foreclose and take mark-to-market losses. Thus, they will likely wait for improved market conditions to unload assets from their books.
We expect the deleveraging process will continue to be more or less orderly throughout the remainder of 2011, quite a different scenario from the market clearing made possible by the Resolution Trust Corp. in the early 1990s.

10. Real Estate fundamentals — 2010 was a transition year for commercial real estate with vacancy rates of all property sectors bottoming. Corporate tenants are taking advantage of lower rents to “right-size” or consolidate their space. As a result, leasing activity has surged over the past three quarters.
Nonetheless, large shadow inventory still remains a challenge, especially in the office sector. In this past downturn, many big companies went through large-scale layoffs without shedding significant spare space. The pace of occupancy recovery could be moderate as a result.

We believe that the commercial real estate recovery will largely depend on the strength of the labor market. While we are optimistic about the outlook for the industry in 2011, the recovery in net operating income (NOI) could be slow over the next 12 to 18 months, except for the apartment sector, which will likely continue to experience strong NOI growth.

Overall, we believe that we are in the early stage of the next real estate up cycle. In 2010, the global search for yield put rapid downward movement on the cap rates of institutional-quality properties in primary markets.
With improving fundamentals, we believe the commercial real estate market will attract significantly more investor interest and new capital. Investment activities will likely expand beyond the traditional core into the lesser-quality assets and secondary markets in 2011.

David Lynn is a managing director, generalist portfolio manager and head of investment strategy for ING Clarion Partners in New York.

Friday, February 11, 2011

Sharpe Properties Helps Braman to Recall Mayor Alvarez

Sharpe Properties Helps Braman to Recall Mayor Alvarez

In an effort to assist businessman Norman Braman in his crusade to recall Mayor Alvarez, Sharpe Properties, a full-service real estate company, donated space for Braman to open up signing tables at its Miller Heights Shopping Center, located at 9381 SW 56th Street (Miller Drive), Miami, Florida 33165.

First Step to Recall Mayor Alvarez: Signatures
Infuriated by Miami-Dade Mayor Carlos Alvarez's decision to raise property taxes, Braman launched an aggressive campaign to get signatures from registered voters to recall Mayor Alvarez. Now that the campaign obtained more than enough signatures, the next step is to make sure that everyone goes out to vote.

Second Step to Recall Mayor Alvarez: Absentee Ballot Request Forms
Because all registered voters may not have the ability to vote on election day due to traffic, work, or other time constraints, Braman's campaign is taking additional steps to improve voter turnout to recall Mayor Alvarez.  Braman will have Absentee Ballot Request Forms available for voters to pick up at various locations. Sharpe Properties is doing its part to help by providing Braman's campaign a location at the Miller Heights Shopping Center, located at 9381 SW 56th Street (Miller Drive), Miami, Florida 33165.

According to Braman's campaign, the Absentee Ballot Request Forms to recall Mayor Alvarez will be available at the Miller Heights Shopping Center on a daily basis from 11am to 5pm.

To learn more about Norman Braman's campaign to recall Mayor Alvarez, please visit their website at recallmayoralvarez.org

To learn more about Sharpe Properties, please visit their website at www.SharpeProperties.com. Their website is also available in Spanish at www.sharpeproperties.com/espanol, or by clicking the "En EspaƱol" tab located on the upper right-hand corner of any webpage.

Wednesday, February 9, 2011

US commercial property prices may be too rosy

US commercial property prices may be too rosy -Vornado CEO

Reporting by Ilaina Jonas
Date:  Tue Feb 8, 2011 3:17pm EST

U.S. commercial property prices might be outrunning rents
Feb 8 (Reuters) - Prices on some U.S. commercial real estate prices have gotten so high they may not be able to generate enough cash to justify the price tag, Vornado Realty Trust's (VNO.N) CEO said.
Although prices are up over the past two years, rents in most U.S. commercial real estate markets are lagging.
"I think we've bottomed, and we're going in an upward trend," Vornado CEO Michael Fascitelli said on Tuesday while speaking at a real estate event hosted by De La Salle Academy, a private, independent, nonsectarian middle school for economically disadvantaged boys and girls located here in Manhattan.
"The question is what's the slope of that line going upward," he said. "The pricing is indicating a much more robust recovery in three to five years than I think we might have."

Since hitting lows in mid-2009, U.S. commercial property prices are up 33 percent but still off 18 percent from their peak in 2007, according to the Green Street Advisors Commercial Property Price Index.
Vornado chiefly owns office and retail properties in key U.S. markets, with most of the properties located in Manhattan and in the Washington, D.C. area. Those markets have been the primary beneficiaries of federal spending, either from the bailouts of Wall Street or the expansion of the federal government.

But elsewhere the U.S. commercial real estate market has been sluggish, mirroring job growth.
Interest rates still pose a risk for U.S. commercial real estate, whose sales depend on using a great deal of borrowed money, Fascitelli said. Low rates have helped owners hang on to their properties and have lifted prices by keeping borrowing costs low. The lower the borrowing costs, generally, the higher prices rise.
But it is unlikely interest rates will fall further, so real estate values will have to depend on income the properties generate from rent.
 
"I worry about rates spiking up without inflation in assets," he said. "You have to make the money by income going up. The risk is that you do OK on the front rentals for a while, but interest rate rises take all the juice away."

Saturday, February 5, 2011

DERM Permit Requirements in Miami-Dade County

DERM Permit Requirements in Miami-Dade County

Prerequisites Before Operating Business:

If you are planning to open a new business in Miami-Dade County, there are several certificates and/or licenses that you must obtain before you are allowed to begin operating.  

Department of Environmental Resources Management (DERM)
Department of Environmental Resources Management

The certificates and licenses explained below are by the Department of Environmental Resources Management ("DERM")

 

  • Certificates of Occupancy ("CO")
    • Whenever a person gets a building permit for (A) new construction or (B) improvement to an existing building, he/she will be required to obtain a Certificate of Occupancy from the Building Department upon completion of any construction work.
  • Certificate of Use ("CU") a/k/a Zoning Permit
    • It is an approval of a specific use at a specific location.
    • Prior to the issuance of a Certificate of Use, the applicant must obtain DERM’s approval. In order for DERM to approve a Certificate of Use, the applicant must:
      • Comply with DERM's Land Use Regulations (i.e. Wellfield Protection Areas, Uses Served by Septic Tanks, etc),
      • Obtain the appropriate Sewer Capacity Certification (aka Sewer Allocation), and
      • Obtain any required DERM Operating Permits (i.e. Industrial Waste, Air Source, Storage Tank, Grease Discharge, etc.).
  • Occupational Licenses a/k/a Local Business Tax
    • Each municipality will issue its own type of Occupational License
    • Prior to the issuance of the Occupational License, the applicant must first obtain DERM's approval by complying with the same DERM requirements listed above for a Certificate of Use.

DERM Permits Needed:

If a permit from DERM is necessary for you to obtain any of the above referenced certificates and licenses, DERM require different permit applications based upon what the permit is needed for.
This table below is intended as a guide when deciding if a permit is necessary. There may be instances when a permit is required and it is not listed here. In addition, there may be times when activities require multiple permits. We encourage you to call 305-372-6789 if you do not see your particular case listed below or to receive additional information about what other permits might be needed in your situation.

DERM Permit Applications

This permit is needed for:
Permit Application FAQs
Aboveground storage tank installation (within a structure) N/A FAQs
Aboveground storage tank installation for emergency generator N/A FAQs
Air pollution sources - required prior to the construction or modification of any facility or emissions unit Miami-Dade County Air-Construction Permit FAQs
Air pollution sources - required for the operation of any facility or emissions unit Miami-Dade County Air-Operating Permit FAQs
Asbestos-containing materials - needed before all demolition projects & any renovation where asbestos might be disturbed Notice of Asbestos Renovation or Demolition Affidavit for Asbestos Survey FAQs
Boat docking and storage facilities Marine Facilities Operating Permit FAQs
Coastal construction projects such as installation or repair of docks, piers, pilings, moorings, marinas, boatlifts, davits, seawalls, and seawall caps. A Class I permit is required prior to doing any work in, on, over, or upon the tidal waters of Miami-Dade County or any of its incorporated municipalities Class I FAQs
Construction within non-tidal canals, canal rights-of-way, canal maintenance easements & reservations Class III Permit FAQs
Demolition or renovation projects where Asbestos material(s) might be present or disturbed Notice of Demolition or Asbestos Renovation Affidavit for Asbestos Survey FAQs
Dewatering or whenever water is removed from an excavation or depressed ground Class V Permit FAQs
Dock(s) construction, installation or repair (including piers, pilings, moorings, marinas, boatlifts, davits, seawalls, and seawall caps). A Class I permit is required prior to doing any work in, on, over, or upon the tidal waters of Miami-Dade County or any of its incorporated municipalities Class I FAQs
Drainage construction in non-residential sites or landfills, remedial waste sites, etc Class VI Permit FAQs
Drainage construction with outfalls or connection to an existing outfall Class II Permit FAQs
Elevation of new structures and substantially improved or damaged structures (elevation certificate) to show your structure is built in compliance with the National Flood Insurance Program (NFIP) - mandatory for all Flood Elevation Certificate
Flood Proofing Bulletin
FAQs
Grease waste to the sewer system-flow is less than 25,000 gpd Grease Discharge Operating Permit FAQs
Hazardous & biohazardous waste transport-waste oil, septic waste, waste radiator fluid, photographic chemicals & other non-hazardous industrial waste Liquid Waste Transporter FAQs
Hazardous materials or hazardous waste - large user or generator Industrial Facilities (IW-O) Permit FAQs
Hazardous material or hazardous waste - small user or generator, facilities include mechanical repair facilities, machine shops, paint & body shops, chemical storage facilities, x-ray & photo developing facilities, printers & salvage yards IW5 Permit FAQs
Industrial pretreatment facility - a new facility to be constructed or significant changes to an existing facility Industrial Pretreatment Facility Construction Permit FAQs
Industrial pretreatment facility modifications being made to existing facilities Minor Revision to an Industrial Pretreatment Facility FAQs
Lake fill Solid Waste/Lake Fill FAQs
Wellfield protection areas not served by sanitary sewers – Construction within this area IW6 Permit FAQs
Land use - non-residential, within major wellfield protection areas not served by sanitary sewers. IW6 Permit FAQs
Mangrove trimming or removal and any project that involves filling or the placement of fill in coastal or mangrove wetlands. A Class I permit is required prior to doing any work in, on, over, or upon the tidal waters of Miami-Dade County or any of its incorporated municipalities. Class I FAQs
Ozone-depleting compounds (ODCs) including, but not limited to, Freon (R-12 and R-22) - needed to purchase, sell, handle Stratospheric Ozone Protection Operating Permit FAQs
Privately Sanitary Sewer Operating (PSO) Permit (new PSO or modification of existing permit) Private Sanitary Sewer Operating Permit PSO Change of Ownership (permitted sources) FAQs
Renovation or demolition projects where Asbestos material(s) might be present or disturbed Notice of Demolition or Asbestos Renovation Affidavit for Asbestos Survey FAQs
Sanitary Sewer System (privately owned or operated) Private Sanitary Sewer Operating (PSO) Permit PSO Change of Ownership (permitted sources) FAQs
Sewer pipes and pump stations (new construction OR modification of existing) Construct a Domestic Wastewater Collection/transmission System FAQs
Sewer system able to handle the additional flow - all applicants need this before building permit is issued Sewer Capacity Certification (Allocation Letter) FAQs
Sewage treatment plants (commercial greater than 5,000 gallons per day/ residential greater than 10,000 gallons per day & a public sewer system is neither operable nor available within ¼ mile of operation) - construction Interim Domestic Wastewater Permit FAQs
Solid Waste:
  • Biomedical waste storage and processing
  • Class I and Class III Landfills
  • Composting / Mulching
  • Construction and Demolition Debris Disposal
  • Material Recovery Facilities (MRF)
  • Metal Recycling
  • Paper and Cardboard Recycling
  • Plastic Recycling
  • Transfer Stations (TS)
  • Waste Tire Storage and Processing
Solid Waste Permit Application FAQs
Storage tank - abandonment of a storage tank: aboveground or underground Storage Tank Abandonment Application FAQs
Storage tank - removal of a storage tank: aboveground or underground Storage Tank Removal Application FAQs
Surface Water Management Standard General Permit (Environmental Resource Permit) ERP Permit (Surface Water Management Permit) FAQs
Trees-cutting down, bulldozing, removal or relocation in Miami-Dade County, except for certain exemptions. Tree Removal Permit Application FAQs
Trees-cutting down, bulldozing, removal or relocation in a Natural Forest Community NFC Permit Application
Water treatment plants - construction for community systems Potable Water Supply Operating Permit PWO - Permit Application Package FAQs
Wellfield protection areas not served by sanitary sewers – Construction within this area IW6 Permit FAQs
Wetlands (Freshwater) - a Permit is required for direct and indirect impacts to freshwater wetlands including clearing, filling and/or demucking Class IV Application Package Class IV Application Form FAQs

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Friday, February 4, 2011

Commercial Real Estate Property Recovers in U.S. as `Tsunami of Distress' Fails to Hit

Commercial Real Estate Property Recovers in U.S. as `Tsunami of Distress' Fails to Hit

By Brian Louis and David M. Levitt - Feb 4, 2011 10:16 AM ET

From Manhattan office towers to apartments in Florida to retail properties in Washington, commercial real estate values are rising, defying predictions of a collapse that would drag the U.S. economy back into recession.
Office and residential buildings stand in midtown Manhattan in this aerial photograph taken over New York. Photographer: Daniel Acker/Bloomberg
Prices of commercial properties sold by institutional investors surged 19 percent in 2010, the second-biggest gain on record, according to an index developed by the MIT Center for Real Estate. Investments in office properties, the largest part of the market, more than doubled last year to $41.6 billion, according to Real Capital Analytics Inc., which tracks commercial property sales globally.

Near record-low interest rates are luring buyers with the prospect of cheaper financing and higher returns. Lenders are beginning to sell distressed properties and loans as rising earnings give them a cushion to absorb losses. Investors, convinced the worst is over, have pushed prices on commercial mortgage-backed bonds to the highest level in two years.

“Give a little credit to the strategy put forward by the government: keeping interest rates low and giving lenders some flexibility to hold these troubled assets on their books for a while,” Dan Fasulo, managing director at New York-based Real Capital, said in a telephone interview. “Now that values are on the upswing, it’s given owners and lenders more wiggle room to work out these troubled situations.”

Conditions Stabilize

Market and credit conditions have leveled off and signs of price stabilization are emerging in several key markets, Patrick M. Parkinson, Federal Reserve director of banking supervision and regulation, said in remarks prepared for a hearing today by the Congressional Oversight Panel of the Troubled Asset Relief Program, created following the 2008 financial crisis.

“Nevertheless, while some directional metrics are improving, the commercial real estate market is still distressed and the strength and pace of improvements remain uneven,” he said. “Many banks with commercial real estate concentrations will continue to be under stress.”

While several banks will struggle, and continued delinquencies and losses will hinder economic growth, “we do not see commercial real estate losses as a threat to systemically important financial institutions,” Parkinson said.

Commercial real estate transactions may climb 40 percent to $135 billion this year, Chicago-based Jones Lang LaSalle Inc., the second-largest publicly traded broker, said on Feb. 2. U.S. commercial real estate values, which fell 45 percent from the October 2007 peak to the trough in August 2010, have risen three consecutive months, according to Moody’s Investors Service.

Vornado’s Mall Deal

Those taking advantage of improving conditions include Vornado Realty Trust, which in December paid $115 million for the $171.5 million loan on its Springfield Mall in the Virginia suburbs of Washington, resolving a standoff with its lender. The loan had been transferred to a special servicer a year earlier because the New York-based real estate investment trust was in danger of “imminent default,” according to Fitch Ratings.
In downtown Fort Lauderdale, Florida, a market damaged by declining home values, USAA Real Estate Co. bought Las Olas Centre, a 469,000-square-foot (43,600-square-meter) office complex that had been seized by lender Wells Fargo & Co. USAA Real Estate, based in San Antonio, paid $170 million in September; the previous owner spent $231 million near the top of the market in July 2007, according to Real Capital.

Delinquencies Slow

Last February, the TARP oversight panel said a deteriorating commercial real estate market had the potential to wreck the U.S. economy. The panel said in a report that almost half of the $1.4 trillion in commercial property loans set to be paid off by 2014 were underwater, meaning the borrower owed more than the property was worth.

Unless refinanced, the debt “could threaten America’s already weakened financial system,” the report said.
While late payments on commercial mortgages bundled and sold as bonds increased to 8.79 percent in December from 4.9 percent a year earlier, the pace of growth in delinquencies is slowing, according to Moody’s. In 2011, the delinquency rate will climb less than in the past two years, the ratings firm said in a Jan. 12 report.

“That tsunami of distress that had been forecast has not really materialized,” said Brian Stoffers, co-president, CBRE Capital Markets, a financing and investment sales division of Los Angeles-based broker CB Richard Ellis Group Inc. “The market’s getting stronger.”

Fundamental Improvement for Commercial Real Estate

As lenders renegotiate some loans and sell others, the danger of defaults triggering another recession has eased, said Susan Wachter, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia.

“Balance sheets are firming up, interest rates still are near historic lows and the fundamentals of commercial real estate are improving,” Wachter said.

An expanding economy is helping boost the confidence of real estate investors. U.S. gross domestic product advanced at a 3.2 percent annual rate in the fourth quarter, the Commerce Department said Jan. 28. The U.S. office-market vacancy rate will fall to 17 percent in 2011 from 17.8 percent in the fourth quarter as employers add jobs and few new buildings are completed, according to an estimate by Grubb & Ellis Co., a Santa Ana, California-based broker.

A resurgent debt-securitization market is also driving the recovery. Commercial mortgage-backed securities issuance in the U.S. rose to $10.9 billion in 2010 compared with $2.1 billion in 2009, according to a Jones Lang report on Feb. 2. Issuance is estimated to be over $40 billion in 2011, “providing added liquidity to owners with maturing loans to refinance,” the report said.

Hot Cities

The biggest metropolitan areas, notably New York, Washington and Boston, are leading the recovery as employment growth and large inventories of well-leased, income-producing properties attract investors. New York commercial property prices rose 16 percent in the fourth quarter from a year earlier, while Washington gained 20 percent, according to the National Council of Real Estate Investment Fiduciaries, a Chicago-based trade group.

In the office market, prices in the top 10 cities jumped 30 percent in the third quarter, according to CoStar Group, a Washington-based provider of real estate data. Nationally, prices fell 7 percent.
Market segments including hotels, apartments and retail are also on the rise.

Hotels were hit hard by the recession, as businesses and consumers cut back on travel. A rebound started last year, with the average occupancy rate in the top 25 U.S. markets rising to 64 percent from 60 percent in 2009, according to Smith Travel Research Inc. of Hendersonville,Tennessee.

Blackstone’s View

The upswing is boosting hotel sales in the Americas, which are expected to jump as much as 25 percent this year, Jones Lang LaSalle’s hotel investment-services unit said on Jan. 4. As property values rise, lenders are reworking existing loans and making new ones, according to Christopher Jordan, head of hospitality banking at San Francisco-based Wells Fargo.

“Hotels represent a very attractive investment opportunity because they’ve seen such a sharp decline,” Jonathan Gray, senior managing director and co-head of real estate at New York- based Blackstone Group LP, said during a conference on Nov. 18. “We’ve been deploying a lot of capital in this area.”
Hotels have an advantage that other types of commercial real estate lack, said Morgans Hotel Group Co. President Marc Gordon. They can boost room rates quickly to take advantage of economic growth, while tenants at offices and retail properties tend to sign multiyear leases.

Rent Appeal

Sales of apartment buildings nationwide rose in the fourth quarter as home ownership remained at a 10-year low and demand for rentals pushed lease rates to the highest in four years, according to Axiometrics Inc., a Dallas-based research company.
Apartment rents climbed 4.31 percent in the last three months of 2010, the most since the third quarter of 2006, according to Axiometrics. The firm projects a 5.85 percent increase in U.S. rental revenue in the next 12 months.

The volume of apartment sales nationwide climbed 96 percent to $33.7 billion in 2010 over a year earlier, according to Real Capital. December’s dollar volume of $6.1 billion in sales was the highest monthly total since October 2007, when Tishman Speyer Properties LP and Lehman Brothers Holdings Inc. completed the purchase of Archstone-Smith Trust, which at the time was the largest apartment real estate investment trust by value.

Retail Sales

The retail segment of the market is improving, though at a slower rate than offices or apartments. Transactions rose 51 percent to $22.6 billion last year, according to Real Capital. In the fourth quarter, deal value averaged $168 a square foot, up 30 percent from a year earlier.
Consumer spending rose more than forecast in December. Deutsche Bank Securities Inc. chief U.S. economist Joseph LaVorgna projected “continued healthy spending in 2011,” citing a “tame” inflation trend.
Of the $52 billion of retail properties to fall into default, just over half have completed workouts, “giving the retail sector the distinction as the first property type to pass the halfway point in resolving its distress,” Real Capital analysts wrote in a January report.
A continued improvement in the market will help banks sell off additional bad loans.

Below the Peak

The recovery isn’t complete. The MIT Real Estate Center transaction index is 28 percent from its June 2007 peak. On an accumulated total return basis, which includes net income generated by the properties, the index is 16 percent below the high, the Cambridge, Massachusetts-based center said in a Feb. 2 statement.
Markets hit hard by the housing bust are struggling and are less likely to recover quickly, PriceWaterhouseCoopers LLP said in its annual Emerging Trends in Real Estate survey in October. Las Vegas, Milwaukee, St. Louis, Detroit and Cleveland are among the cities that scored the lowest in its poll of investors.
“Many secondary cities and most tertiary markets just do not appear on investor radar screens,” the study said.
James S. Corl, managing director of real estate investments at New York-based private-equity firm Siguler Guff & Co., said investors are crowding into the best-performing cities, betraying a lack of confidence in the broader market.
“What’s really going on right now is a classic risk aversion,” he said in an interview. “Most people allocating money to commercial real estate are going after core deals” and “paying up for existing leases.”
Corl said this conservative approach means investors passing up the opportunity to make bigger returns. “Risk is very attractively priced,” he said.

Working Down Debt

Banks reduced the amount of soured real estate debt last year primarily through sales of loans, according to Matthew Anderson, managing director at Foresight Analytics, an Oakland, California-based research firm. The amount of nonperforming commercial real estate mortgages and construction loans at banks peaked in the first quarter of 2010 at $126.2 billion. By September, the amount was $115.7 billion, said Anderson.
“There’s still a large volume of nonperforming loans out there that still need to be dealt with,” said Anderson, who expects further declines. He is scheduled to testify today before the TARP oversight panel that raised concerned about defaults last year.

Large Numbers

Some of the deleveraging is occurring at places such as Auction.com in Irvine, California. The company auctioned $2.2 billion of notes in 2010, fetching 56 percent of face value, and it expects that to at least double this year.

“The numbers are so large,” said Kenneth Rivkin, Auction.com managing director, who described his company as an “EBay for properties.” “With real estate values down 40 percent nationally, there has to be hundreds and hundreds of billions” of distressed mortgages and properties poised to be sold. “If somebody has a good platform that has proven itself, their business should be up significantly.”

Carlton Group, a New York-based real estate investment bank that runs the Carlton Exchange listing service, closed loans with a principal balance of more than $2 billion last year, and expects to do $7 billion to $8 billion this year, said Howard Michaels, the firm’s chairman.

Prices for the most sought-after properties in Washington and New York are approaching peak levels. Capitalization rates are falling as prices rise. The cap rate, a measure of investment yield, is calculated by dividing net operating income by purchase price.

Manhattan’s average cap rate on offices was 5.5 percent at the end of 2010, compared with 6.2 percent for central business districts nationwide, according to Real Capital.
Seattle, Chicago

As yields on properties in those markets tumble, investors are looking to other markets for higher returns.
Seattle, the San Francisco Bay area, suburban New York and Washington, and parts of Chicago and Atlanta will be among the next markets that see rising prices, according to Lee Menifee, senior director of global strategy at CB Richard Ellis Investors in Los Angeles. The affiliate of CB Richard Ellis has $36 billion in assets under management.

“They’re getting interest both from lenders and investors,” Menifee said of these areas. “The confluence of those two things would suggest that there’s going to be a run-up in prices for high-quality assets in those next-tier markets.”

To contact the reporters on this story: Brian Louis in Chicago at blouis1@bloomberg.net; David M. Levitt in New York at dlevitt@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.