Jul 30 2012

July-August CIRE

The July-August CIRE Issue is now online.

Topics include:

Technology Solutions: Handheld Reality

The combination of smartphones, geolocation, and augmented reality is creating new ways for people to interact with their surroundings. Commuters in Seoul, South Korea, and Chicago can buy groceries while waiting for their trains without having to touch a gallon of milk. Real estate buyers in Dubai can point their smartphones at buildings to find available space. These advances in mobile technology have the potential to change the way consumers shop and the way commercial real estate users find property. The technology is in peoples’ hands, but first it has to overcome its reputation as a gimmicky “Star Trek” toy. Commercial real estate data also has to become more available and accurate.

Medical Office Trends: Hospital Affiliation is a strong indicator of MOB asset value.

In addition to broader economic factors affecting all commercial property types, healthcare real estate is impacted by increasing levels of regulatory compliance; in particular, PPACA was upheld by the U.S. Supreme Court in late June. This legislation has fostered significant marketplace uncertainty, profoundly influencing how tenants (physicians) and MOB owners (hospitals and equity investors) are approaching their real estate decisions.

No Replay: this year’s recovery is not a repeat performance

The latest survey of economists shows that the odds of a recession occurring, which were nearly at 50–50 in mid–2011, are now down to slightly over 1 in 4 in April 2012. In other words, there is 75 percent probability that the U.S. recovery will continue. If the recovery follows this script of 2 percent to 3 percent GDP growth, then the U.S. will create more than 2 million net new jobs in 2012, and we will see vacancy in most commercial real estate sectors fall by 50 basis points to 100 bps this year.

The commercial real estate sector is climbing back. Although this recovery remains fragile and things can easily go wrong, it appears we are finally at the stage in the cycle where more things will continue to go right.

Market Momentum: Modest economic growth keeps commercial real estate on the road to recovery

With the rekindling European financial crisis and the U.S. presidential election coming into full swing, overall economic activity is likely to slow down during the second half of the year. Businesses will become even more cautious about expanding operations and hiring new workers, which means demand for commercial space is likely to drop. The capital markets may also suffer a few bouts of illiquidity if the woes in Europe take an ugly turn or another unsightly battle to raise the U.S. debt ceiling breaks out.

Despite these impending challenges, the most likely outcome continues to be modest economic gains across most of the U.S., with a few notable bright spots lighting the way, including the technology, manufacturing, agriculture, and energy industries. Better news from Europe and government agreement to tackle the massive fiscal issues facing the country would provide an upside surprise.

Market Trends: High-Tech on a High Tear

High-tech job growth is fueling office absorption in more markets than expected, according to Jones Lang LaSalle. Access to talent is the No. 1 location driver, along with creative space requirements: large open floor plates close to urban transit and amenities. Secondary cities seeing positive rent growth in high-tech sub sectors include Seattle; Vancouver, B.C.; Denver; Pittsburgh; Houston; Portland, Ore.; Austin, Texas; San Diego; and Montreal

Why Comply? Ignoring loan covenants is a dire mistake in today’s market

Ignoring the requirements of financial debt covenants can have dire consequences for all property owners. Even borrowers who have structured their businesses to protect their personal assets may be putting them at risk by failing to comply with financial debt covenants in their lending contracts. In this market, where properties have lost value and tenant rosters are slim, owners may not be meeting their loan-to-value requirements. In particular, small-property owners who have only a few tenants may risk default if they lose just one tenant. For these reasons and others, property owners need to pay attention to debt covenants.

CMBS Concerns: Are securitized loans worth the trouble?

Five things you should consider before committing to them.

Climate change: Adjust your business strategies to succeed in the shifting market

…new business patterns will never revert back to previous “good” times. For now, the U.S. economic engine continues to sputter along. The trick is to figure out how to keep your business from merely sputtering along — how to put it on the track to positive growth.

The answer is to look at what you’re currently doing — and change. You must adapt and focus on the things you can change — strategies within your business model — instead of the things you can’t — like the weather.

These tips from CCIMs and business experts will help to re-invigorate your approach.

At the Office Crossroads: What’s the next move for investors?

The office investment market is at a crossroads. The spread in capitalization rates between office properties in core markets vs. office properties in secondary and tertiary markets reached a 10-year high in first quarter 2012, according to Real Capital Analytics.

Buyers Guide: Write Right, Tout, Map It, KudoCase

Healthcare Headaches: Various issues delay medical real estate construction.

During fourth quarter 2011, real estate investment analysts predicted that demand for medical office buildings and healthcare facilities would continue to be strong over the next decade, due in part to high demand for healthcare services. While demand for healthcare real estate will most likely outpace demand for other property types in the near future, the following financial and legislative issues have caused healthcare providers to take a second look at new construction projects.

About the author

CRE Editors

The Editors moderate this CRE blog and the Corporate Real Estate LinkedIn Group.