Southern California Industrial Real Estate Blog

SOCAL INDUSTRIAL REAL ESTATE SNAPSHOT – SEPTEMBER 2010

By Jodi Summers

There’s a lot of blah blah blah as to the recovery has stagnated and how the universe is on the precipice of collapsing into itself, that’s a lot of pre-election fervor. The experts say, “Fundamentally both the economy and corporate balance sheets are in better shape than reflected in the current sentiment.”

In the industrial sector, manufacturing employers continue to add payroll for the seventh straight month, adding 36,000 positions in July. According to a recent Research Brief blog from Marcus & Millichap, an 8% year-to-date rise in imports spurred the creation of 25,000 trade, transportation and utilities positions.

Here are the CoStar Group’s latest Industrial Market Statistics

Ø 13 million SF of positive net absorption in 2Q 2010. This is the first positive reading since mid-2008.

Ø .The national vacancy rate decreased from 10.1% to 10%, the first drop in over two years. Availability also slightly decreased from 14.8% to 14.7%.

Ø Real Capital Analytics reports that single tenant industrial cap rates had a weighted average of 8.5% in 1Q 2010. 85 basis points higher than the same period last year.

Industrial Market Conditions

Ø Occupancies have leveled off.

Ø Many tenants choose not to move and instead remain in their current space and negotiate more favorable terms.

Ø Due to negative demand, development is down.

Current Industrial Trends

Ø Companies have shifted to leasing space rather than owning, preferring to invest their capital in their core products/ product development (i.e. Coca Cola).

Ø Current Buildings that have been around for decades are becoming functionally obsolescent to meet modern design specifications.

Ø Rental rates are low; demand will need to raise rents, raising cap rates, spurring new development.

Positive Indicators

Ø When demand finally turns around, industrial has a short construction cycle and can respond quickly.

Ø Building obsolesces will account for a huge increase in demand beyond the economic recovery.

Hang on, we will get through this.

We’re here to help you with industrial properties. Please contact Jodi Summers - jodi@jodisummers.com or 310.392.1211, and let us move forward together.

**

http://blog.marcusmillichap.com/

http://marcusmillichap.files.wordpress.com/2010/08/graph_lg3.png

http://www.edd.ca.gov/About_EDD/pdf/urate201010.pdf

http://www.globest.com/blogs/netleaseinsider/-301645-1.html?ET=globest:e23095:277110a:&st=email

http://www.labormarketinfo.edd.ca.gov/?pageid=1003

http://www.realestatechannel.com/industrial-market-strength-forecast.jpg

http://www.safetyresource.net/images/ggonpants.jpg

http://www.pullman-museum.org/main/prg337.jpg

INCREASE IN IMPORTS AND EXPORTS BRINGS NEW INDUSTRIAL REAL ESTATE DEVELOPMENT

By Jodi Summers

Cargo volume at our neighboring ports of Los Angeles and Long Beach posted a 28% annual increase in the first quarter, inspiring developers to build more warehouse space in Southern California.

Developers Highland Fairview recently broke ground on an industrial hub about 72 miles east of Los Angeles. The initial phase will encompass 2.6 million square feet, most of which has been leased to Skechers USA Inc., which will be is consolidating operations from five facilities.

The project is expected to create 1,100 construction jobs and, once completed, house more than 3,000 employees, observed Iddo Benzeevi, Highland’s chief executive. “You now see a trend in the marketplace where big companies are consolidating their logistics operations,” Benzeevi said. “The diversity of industries we have here is what continues to drive the demand for this kind of space.”

**

http://www.knoxnews.com/news/2010/apr/09/industrial-property-market-recovery-seen-2011/

http://www.laalmanac.com/images/Port%20of%20Long%20Beach.JPG

http://graphics8.nytimes.com/images/2007/07/31/automobiles/533-port.jpg

http://www.socalindustrialrealestateblog.com/wp-content/uploads/2008/01/PortofLAlogo.jpg

https://www.cushwake.com/cwglobal/docviewer/AmericasEconomicPulseMAY2010.pdf?id=c33600033p&repositoryKey=CoreRepository&itemDesc=document&cid=c27400005p&crep=Core&cdesc=binaryPubContent&Country=GLOBAL&Language=EN&just_logged_in=1

http://www.skechers.com/

GLOBAL USE OF GREEN BUILDING PRODUCTS SKYROCKETING

GLOBAL USE OF GREEN BUILDING PRODUCTS SKYROCKETING

By Jodi Summers

Keep studying those lists of top rated green building products, because global purchasing of green building products will grow to $571 billion by 2013. This growth is more than tenfold from the $455.3 billion spent on green materials in 2008, notes the study by Allied Business Intelligence Research.

“Innovation, particularly in wood and insulation, is a key driver behind the growth of green building products,” observes Larry Fisher, research director of ABI Research’s next generation practice.

“The most significant driver of growth in the green building materials sector is concern for the environment. While environmental preservation has been a topic of discussion for decades, only recently has the level of concern for the environment driven governments, manufacturers and consumers to respond.”

The study notes that businessmen and builders will look toward products with greater energy efficiency produced in an environmentally-friendly manner. Preferred lumber and wood products will come from well-managed forests.

Now if we can only figure out an efficient way to make drinkable ocean water.

**

http://www.purchasing.com/article/439362-Buying_of_green_building_products_to_increase.php

http://www.mossgreenchildrensbooks.co.uk/wp-content/uploads/2009/10/iStock_000001111800Small-2.jpg

ASIAN TRADE INCREASES SHOULD BOOST PORT ACTIVITY + BOLSTER THE WAREHOUSE MARKET

By Jodi Summers

The International Monetary Fund (IMF) released its 2010 World Economic Outlook… and the good news is the world economy to grow by +4.2% in 2010. Advanced economies are predicted to grow at a much slower pace than the emerging economies. The economies of developed nations are predicted to grow by +2.3% in 2010, with the U.S. economy outperforming both the Euro Area and Japanese economies over.

It is the developing economies that are of particular interest to the Lost Angeles warehouse market. Emerging economies are projected to expand by +6.3% this year, with the Chinese and Indian economies outperforming the rest of the world, growing by a very robust +10.0% and +8.8%, respectively.

This is good news for us, as the Los Angeles Customs District expects international trade with developing countries to boost our local economy, as well as port revenues, and warehouse leasing / sales statistics.

The Los Angeles ports’ top five trading partners are forecasted to expand by:

* China (+10.0%)

* Japan (+1.9%)

* South Korea (+4.5%)

* Taiwan (+6.5%)

* Thailand (+5.5%)

**

http://www.laedc.org/eedge/index.html#4

http://www.socalofficerealestateblog.com/wp-content/newuploads/2010/03/port-of-la.gif

http://abclive.in/thumbnail.php?file=IMF_994875137.jpg&size=article_medium

HOW MANUFACTURING + INDUSTRIAL REAL ESTATE FIGURES INTO THE ECONOMIC DOWNTOWN

By Jodi Summers

Now that we are coming out of the recession, the statistics are coming in. According to a report by Cushman + Wakefield, the manufacturing sector was one of the hardest hit in the recent economic downturn. Bet you didn’t know that more than 15.8% of all the manufacturing jobs in the US were lost in the recession, which is why the usually strong industrial marketplace took such a huge hit.

California cities with the highest proportion of employment in manufacturing include: Orange County (11.3%). San Francisco (11.1%) and Los Angeles (10.2%). As you might expect, all three of these cities have seen above-average employment declines.

An interesting national trend, in the 10 cities where employment has fallen the most, manufacturing accounts for, on average, 7.5% of all jobs, while in the eight cities with the smallest decline, manufacturing represents 6.1% of total employment.

The bright side to the whole equation is that the manufacturing sector tends to be one of the most cyclical markets. Just as we saw steep declines in employment during the recession, this sector is likely to experience above-average increases in the recovery. It is expected that new industries and new types of jobs are likely to emerge as the economy resumes growth (imagine the rise of L.A. Green Tech corridor).

Cushman + Wakefield deduce that the cities with the greatest potential to expand in the recovery will be those that have a diverse, educated work force that can adapt to new growth areas as they arise.

The report concludes, “Commercial real estate in the US is in much better condition than one would expect given that the nation just experienced the worst recession in 70 years. Relatively low vacancy compared to previous recessions suggests that the industry will also recover more quickly than expected.”

**

https://www.cushwake.com/cwglobal/docviewer/AmericasEconomicPulseMAY2010.pdf?id=c33600033p&repositoryKey=CoreRepository&itemDesc=document&cid=c27400005p&crep=Core&cdesc=binaryPubContent&Country=GLOBAL&Language=EN&just_logged_in=1

http://somaweb.org/lacre/wp/wp-content/uploads/2009/03/amerappar.jpg

http://www.socalgreenrealestateblog.com/wp-content/uploads/2009/01/los-angeles-2.jpg

http://www.socalofficerealestateblog.com/wp-content/newuploads/2010/03/port-of-la.gif

http://www.santamonicapropertyblog.com/wp-content/uploads/2009/05/cleantech-la-aerial.jpg

http://suebellyank.com/wp-content/uploads/2009/08/panoramicviewfromrunyoncanyon.jpg

http://www.latimes.com/includes/soundslides/then_now_city_hall/05a.jpg

http://rst.gsfc.nasa.gov/Sect4/los_angeles_skyline.jpg

http://faizanbaloch.files.wordpress.com/2009/07/downturn-1.jpg

State of the Commercial Loan Market

By Robert Schroell

The rough ride isn’t over the for the commercial loan market.

Community banks in particular will likely have a tough time in 2010. Hundreds of regional institutions have a significant chunk of their loan portfolios ― up to and exceeding a quarter in some places ― in commercial mortgages.

At the same time, commercial debt is coming due at a staggering rate. The market will need about $1 trillion to service more than $3 trillion in commercial mortgage debt, according to a recent forecast by Keefe, Bruyette & Woods, a well-known New York analyst.

That’s likely to make cash a disappearing commodity, primarily for the banking industry. In fact, experts at Keefe, Bruyette & Woods are urging banks to consider offering extensions to cash-strapped homeowners, many of whom have struggled to refinance their existing mortgages.

A significant slew of delinquencies in CMBS (commercial mortgage-backed securities) and bank loans is also expected to shape the course of 2010. It’s also almost difficult to imagine CMBS delinquencies getting any worse ― the rate skyrocketed an astounding 500 percent last year, jumping past 6 percent in December 2009 for the first time ever.

The governor of the Federal Reserve Board recently tried to rally optimism, noting that recovery should begin to take root as the year progresses. But those rosy projections didn’t include the commercial real estate market, which continues to flounder amid strained credit conditions and stagnant refinancing.

All in all, it’s a less than inspiring picture of what’s likely on the horizon.

“We estimate that the weighted average price decline for the commercial mortgage market is roughly 25%,” the experts at KBW state in their analysis. “This suggests that almost all the equity in the commercial sector has been wiped out.”

Fortunately… there’s pretty much no place else to go but up.

**

http://www.mortgageloanplace.com/commercial-mortgage.html

http://www.newagedesign.com.au/library/scales.jpg

http://www.acumenlawgroup.com/wp-content/uploads/2009/11/commercial-loan.jpg

http://www.sandiegocommercialfunding.com/xSites/Mortgage/AxisRealEstateMortgageInc/Content/UploadedFiles/office_building_commercial_loan.jpg

http://www.sbasmallbusinessloans.com/moneywalk.jpg

U2 CAN BUY COMMERCIAL PROPERTIES @ AUCTION

U2 CAN BUY COMMERCIAL PROPERTIES @ AUCTION

By Jodi Summers

Going, going, gone…with the commercial loan market in such a pathetic state, auctions are the fastest way for banks to unload undesired commercial property assets. If you’re interested in getting involved, there is a July 30 live auction by Sperry Van Ness/Guardian at the Hyatt Regency in Los Angeles includes more than $100 million in real-estate owned (REO), bank-ordered and developer close-out assets in six Western states. If you just want to know more about it read on…

“Sellers are coming to the realization that the price point they had in mind is not a reality. That’s where auctions are so useful in determining value — bringing people together through competitive bidding,“ observed National Auctioneer Association spokesman Chris Longly. “Our membership is seeing more energy and movement this year on the commercial real estate side.“

The National Association of Auctioneers estimates that $58.6 billion in real estate was sold in private live-auction bidding in the U.S. in 2008, up 38.5% from five years ago. Auctions in residential real estate have risen 47.7%, raw land (including agriculture) 36.8%. Commercial real estate is up 31.3%, to $15.5 billion in gross auction sales for 2008. Last year, banks were dealing with residential real estate issues, now, banks are confronting commercial property asset issues.

While the foreclosure moratorium was on in residential, banks were able to reassess their commercial assets. You’ll note that auction activity growing in the 2^nd half of 2009, with major online commercial auction events. In the second half of July, NAI Global offered 75 investment properties in 21 states valued at more than $250 million. The timed online auction will include 58 properties — including the historic State Theatre in South Bend, IN, which still bears bullet holes from the nearby shootout following John Dillinger’s final bank robbery on June 30, 1934 — and 14 other properties. In late July, Sperry Van Ness/Guardian held an auction at the Hyatt Regency in Los Angeles includes more than $100 million in real-estate owned (REO), bank-ordered and developer close-out assets in six Western states.

Among the high profile properties going up for sale is the historic Watergate Hotel made infamous during President Nixon’s wiretapping antics. (http://www.socalofficerealestateblog.com/?p=669). Other noteworthy pieces of real estate hitting the auction market include development sites in the metro Washington, DC area, retail sites in Highland Park, IL, and Spokane, WA, the historic theater redevelopment in South Bend, IN, and an infill site in Flint, MI; an upscale hotel/golf resort in Beecher, WI, and a fully entitled multifamily development tract in Navarre Beach, FL, plus lots of excess and partially developed inventory.

Even the government is getting into it. As you know, the state has been selling off their legacy assets - http://www.santamonicapropertyblog.com/?p=1188, and take a cursory glance @ what the U.S. government might be auctioning off in California, and we find industrial properties in Laguna Nigel, Morro Bay and Red Bluff.

“We’re probably seeing a 30 to 40% increase this year” in office, retail, industrial, multifamily and land auction inquiries, remarked Paul Rogers, senior vice president @ Inland Real Estate Auctions, Inc. “With bank activity in particular, we’re going to be busy for the rest of this year — and probably well into next year.”

This trend echoes the real estate slump of the 1990s and early 2000s, with commercial properties following residential foreclosure auctions after they have been mainstays in the downturn. Companies auctioning properties note that it is an opportunity to sell assets quickly, reduce holding costs, and secure true market value under unpredictable market conditions.

**

Sources:

http://www.costar.com/News/Article.aspx?id=F9243DEB83153259F95525F184C9EEE8&ref=100&iid=140&cid=383F14EEE265B182474DA2442BACBBBF

http://fasrp.sc.egov.usda.gov/fasrp/mainAction.do;jsessionid=804CCE54F02BBCC115D4B0BA22A910FF?pageAction=GetCounties&state=CA&stateName=California

http://www.philly.com/inquirer/world_us/20090720_Watergate_auction_drawing_interest.html

http://www.socalofficerealestateblog.com/?p=669

http://media.commercialappeal.com/mca/content/img/photos/2009/04/16/b17auction.jpeg

http://ethicalforeclosurefortunes.com/wp-content/themes/thesis/rotator/govt_auctions_sm.jpg

http://i.ehow.com/images/GlobalPhoto/Articles/5117276/237446-main_Full.jpg

http://www.unitedcountry.com/picturesx/10086-10099-1576957.jpg

http://www.ritholtz.com/blog/wp-content/uploads/2009/06/foreclosures-may-o9.png

http://www.mccallauctions.com/auctions/photos/1074/p12368596779029.jpg

THE GEOGRAPHY OF JOBS

By Jodi Summers

According to this exploding Geography of Jobs map - http://tipstrategies.com/archive/geography-of-jobs/-

Southern California reached its peak in 2^nd quarter 2005, hit parity 3^rd quarter 2007 and then began our great economic slide…

Check it out:

October 2007

~~

April 2005

~~

March 2009

~~

Let’s hope we go green in more ways than one.

COMMERCIAL LOANS SHOULD BE EASIER TO COME BY

PERHAPS COMMERCIAL LOANS WILL BE EASIER TO COME BY

The Federal Reserve authorized longer- term loans for investors buying securities backed by commercial mortgages in a $1 trillion emergency credit program, taking a step the industry said was needed to avert defaults.

Beginning in June, the Fed will offer five-year loans at higher interest rates than the three-year loans previously approved for the Term Asset-Backed Securities Loan Facility, the central bank in a statement from Washington. The Fed will also accept securities backed by loans designed to help small businesses buy insurance.

Get all the details @

http://www.bloomberg.com/apps/news?pid=20601068&sid=asH8tMd6ss4c

INDUSTRIAL SALES VOLUME REMAINS LOW, CAP RATES STRONG

INDUSTRIAL SALES VOLUME REMAINS LOW, CAP RATES STRONG

Edited by Jodi Summers

Industrial property statistics 4 u: investors closed 279 sales of Class A and B warehouse and distribution property in the fourth quarter of 2007 at an average cap rate of 7.1%, according to CoStar.com. The number of transactions dropped sharply in fourth-quarter 2008, with the cap rate rising 100 basis points. First-quarter 2009 is continuing to trend toward a sharp drop in transactions, with the cap rate edging up another 50 bp to a preliminary 8.6% as of March 18.

 

Get it all @ http://www.costar.com/News/Article.aspx?id=805689186917C1830E65776FC4A47B2B&ref=100&iid=123&cid=383F14EEE265B182474DA2442BACBBBF