There is more money being invest in industrial real estate infrastructure. CMA CGM, the world’s third-largest container shipping line, has purchased a stake in the Port of Long Beach’s Pier J. This move is reputed bring an additional 2.6 million container units to the Port and increase Port revenues by about $70 million over the next five years. These benefits will pass through to warehousing and industrial real estate.
The association marks CMA CGM’s first investment in a port on the West Coast of North America and t makes the Marseille, France-based ocean carrier a partner in the lease and operations of the 256-acre terminal. The company’s ships will call exclusively at the Port of Long Beach when using the San Pedro Bay gateway.
“This first new investment for our Group on the U.S. West Coast will reinforce our position in North America,” said Farid Salem, CMA CGM Group Executive Officer. “It demonstrates CMA CGM’s strong involvement to develop transport infrastructure and to improve quality of service to our customers. By investing in Pier J, the Group ensures that the largest vessels deployed in the trans-Pacific trade will be efficiently managed.”
For the Port, it represents a major vote of confidence in Long Beach’s future.
“Of the large carriers, CMA was the only one that did not have a home locally. We are glad they’ve decided to call Long Beach home,” said J. Christopher Lytle, Port of Long Beach Executive Director. “This agreement validates the investments we are making in our facilities. We are committed to remaining the gateway of choice for trans-Pacific trade.”
The Green Port Policy, adopted in 2005, serves as a guide for decision making and established a framework for environmentally friendly Port operations. This aggressive 10-year, $4.5 billion capital improvement program that includes upgrades to terminals, rail facilities and overall infrastructure.
Pier J is home to Pacific Container Terminal. With a water depth of about 50 feet and 17 post-Panamax gantry cranes, A “Post-Panamax” crane can fully load and unload containers from a container ship too large (too wide) to pass through the Panama Canal (normally about 18 containers wide). This slew of equipment makes the Port of Long Beach one of the few terminals in the world capable of servicing the new generation of giant container ships.
Port PR notes that the Pacific Container Terminal has been operated as a joint venture between global maritime services company SSA Marine and COSCO, a China-based ocean carrier. CMA CGM became a partner in the venture in November and officially announced the agreement on December 11.
CMA CGM operates a fleet of 395 vessels calling at 400 ports around the world, on every continent and in 150 countries. Their vessels have been calling at the Port for many years, but the new arrangement gives the shipping line a West Coast homeport and strengthens the bond with Long Beach. CMA CGM also calls at Long Beach’s Pier A.
The Port of Long Beach is one of the world’s premier seaports, a primary gateway for trans-Pacific trade and a trailblazer in innovative goods movement, safety and environmental stewardship. A major economic engine for the region, the Port handles more than six million container units a year and trade valued at more than $155 billion that supports hundreds of thousands of Southern California jobs.
by Bob Pace – Commercial Real Estate Inspectors
edited by Jodi Summers
There are various aspects to consider when evaluating the condition and remaining useful life of electrical systems: moving parts and unmoving parts, whether the equipment is kept outside or inside the building as well as the age and type of wiring and fixtures just to name a few. The quality of the parts used as well as the quality of the workmanship also has an impact on the useful life.
If the equipment is kept outside it needs to be resealed and painted every 20 years. If not done it will rust and not last at which point you can be faced with tens of thousands of dollars in replacement costs. Indoor equipment lasts longer because it’s protected from the elements and requires less upkeep.
Moving parts generally wear out more quickly than unmoving parts. An example is switches which wear out in 20-30 years depending on the quality and type used.
Unmoving parts, such as wiring, can last 40-70 years depending on the type. If the building contains cloth covered wire, which was used up until the 1950’s, it is at or past its useful life. Knob and tube, which we see in much older buildings, would be well past its useful life.
Outdoor fixtures generally last 10-15 years. Indoor fixtures vary wildly but rarely last over 20 years because of changes in technology.
When you hire an experienced inspector with a solid background in the construction fields he is more likely to notice important indicators that go beyond a familiarity of industry standards and the type of equipment that was installed.
For example, a recently inspected building had indoor fixtures that were installed outdoors; these will have virtually no life. They quickly rust and become “electrocution magnets”.
Another example is a recently inspected vacant cabinet shop. The electrical looked good and properly installed. From past experience the inspector knew to pull apart one of the sub panels and saw sawdust inside at the connections. Although overall serviceable, the system needs to be serviced, cleaned and all connections checked for safety. A spark inside could short out the main panel and cost tens of thousands of dollars in repairs and lost time. All of which could be prevented by under a $1000 in repairs.
Bob Pace, Co-Owner
Contractor License #461030
Commercial Real Estate Inspectors
by Jodi Summers
Environmentally conscious real estate leases faster and at better terms than traditional buildings, yet it is extremely difficult for property owners to finance green upgrades. A recent McGraw-Hill survey concluded that building owners looking for finances to pay for energy retrofits for their properties are often are forced to rely on their personal resources rather than outside funding.
Granted, there are some options green loans, but the routes are not traditional. The government and utility companies are doing their share to facilitate green loans. Out of the box choices may include ESCO (energy service company) financing, energy service agreements, government loan programs, PACE (property assessed clean energy) programs, and on-bill utility financing.
Richard L. Kauffman, senior advisor to the secretary, Department of Energy suggests that owners should be look to capital market investors, state bonds, local banks and government incentives to generate the necessary capital for individual green improvements to their existing commercial buildings.
If you want to try the traditional route, instead of asking the bank for a green loan, try rolling the cost of energy efficient improvements into a building retrofit or renovation. This is an easy way to sidestep lenders’ reluctance to loan on green improvements as a stand-alone investment.
The issue at hand many banks is that green lending is a new thing. They have yet to assimilate green loans in into their underwriting programs…which may require years of data for evaluating risk and assessing the long-term financial impact from green investments.
Research and statistics show that Energy Star and LEED-certified buildings can attract higher rents and generate increased demand from tenants < and that a green property can garner a better lease rates and higher sales price. Lenders aren’t persuaded by research. They want empirical data on risks, and actual cost vs. performance data, not just assurances of what a new technology is expected to deliver.
Los Angeles’ industrial capabilities keep growing… the Port of Los Angeles will undergo a $196 million expansion. Known as the Marine Terminal Redevelopment Project, the two-year project to green and grow the container terminal operated by long-time tenant Eagle Marine Services Ltd. This project is expected to generate nearly 3,400 jobs during construction and add nearly 8,000 permanent direct and indirect jobs to the Southern California economy over the next 15 years.
The Los Angeles Harbor Commission recently certified the final Environmental Impact Report for the proposed expansion of the facility commonly known as “Pier 300.”
Redevelopment will begin by late 2012. The approved the project that will modernize container terminal Berths 302-306, which are under long-term lease to Eagle Marine Services Ltd., a subsidiary of ocean carrier APL.
“Our investment in green growth continues to pay huge economic and social dividends,” praises Los Angeles Mayor Antonio Villaraigosa, in the prepared statement “This project ensures the Port has the world-class infrastructure to remain competitive in the global marketplace, and everyone benefits—our customers, our markets and our communities.”
Green innovations are in accordance with San Pedro Bay Clean Air Action Plan measures, and include equipping the entire terminal with Alternative Marine Power electrical infrastructure to eliminate emissions from ships at berth. When completed, the $196 million project at the Port’s second-largest terminal is expected maximize use of the property by allowing APL to handle nearly 58% more ship calls and accommodate more than 65% more cargo, while growing the terminal footprint less than 20%. Those statistics translate into up to 390 ship calls and the capacity to move more than 3.2 million TEUs annually by 2027 on a 347-acre terminal.
Much of the work on the Eagle Marine Services terminal will be at Berth 306, where the Port will add 1,250 feet of new wharf and 41 acres of backlands on existing fill. Eagle Marine Services will add eight gantry cranes that span the width of the largest container ships in the global fleet. The number of cranes throughout the terminal will double, bringing the total to 24.
According to Gene Seroka, APL’s regional president of the Americas, this project strengthens APL’s ability to “continue providing the level and quality of service to meet our customers’ needs into the future. It represents the progressive approach that the City and the Port of Los Angeles take to working with their business partners.”
Port executive director Geraldine Knatz, the Port of L.A. is investing approximately $1.2 billion over the next five years in capital improvement projects. “We’re making sure that we optimize our facilities, green our operations and build on the advantages that make us America’s No. 1 trade gateway.”
While investing in domestic real estate is simple in theory, it is rarely easy in its execution. There is much involved – from banks’ stringent requirements and the glut of paperwork to overriding labor, market, and macroeconomic conditions.
Even beyond the predictable hardships associated with due process and protocols of purchasing domestic real estate, there are a myriad of “controllable risks” that, if ignored, can threaten, undermine, and even devastate an investment at large.
Here are 4 key risks every domestic real estate investor must know if they want to overcome the litany of hardships associated with today’s real estate investment landscape:
1.) Price perception. Simply put: do not assume that a low price is a good deal. Beyond price, investors should focus on other key facets that determine property value – namely location. When vetting a residential real estate purchase, focus on where it is located, including what subdivision and school district it is in as well as research the overall demographics of those that live there. Find out if the residence is in a rental or multi-owner neighborhood, which is a good indicator of how neighbors will treat your property and theirs relative to curb appeal and otherwise…all, of course, factors that affect the value. Another component is what the residence in question would rent for should you need to go that route as recourse or intention. With some time and effort applied to some simple research for information that is readily available, your price perception may be readjusted to understand whether that low price is actually the good deal that it appeared.
2.) Contracts and paperwork. It is imperative for you or a legal representative to actually read all of the language in any contract or piece of paper you sign, however copious that it may be. There can be terms that are not conducive to property investing, such as “deed restrictions,” which actually limit the allowable percentage markup on resale. In fact, some stipulate that you cannot sell a house for 120% above what you bought it for during the time period .Rules such as these can be too restrictive for professional home “flippers.” Deed restrictions ride with the property, so even if the ownership name changes, you can not get around it. Deed restrictions are also problematic due to a three-month waiting period to sell, which makes valuation difficult and creates a painful delay when faced with a rapidly declining market.
3.) Deal structure. How a deal is structured directly impacts the required cash flow. Many make the mistake of calculating equity and translating that into a monthly cash flow, which can make the deal seem better than what reality delivers. Deal structure decisions should also involve property estimating property taxes and related due dates. In this case, your only source of information should be county-driven facts and figures. Whether taxes seem high, low, or in-line, call the county and check to make sure because your scenario may differ from the prior owner’s situation. For example, if the property you are going to be buying is a foreclosure and the person living in it was a senior citizen they may have had a homestead exemption whereby the county allowed a tax reduction. However, as an investor, you are going to pay top-dollar for your property taxes. Other key deal structure considerations are insurance rates, management fees, vacancy rates and repair costs, which all have their own set of intricacies that you must investigate when considering the deal structure of your potential real estate investment.
4.) Exit strategy. In the realm of real estate investing, not having a clearly defined, pre-planned exit strategy even before purchasing a property can be a financial death knell. Knowing you will ultimately re-sell a property at the onset requires that you consider – and actually vet – all viable options and channels suited for the property at hand. While many investors choose to rehab and flip properties themselves, another highly profitable strategy to consider is simply wholesaling it to another investor on an “as is” basis. This can reduce your financial exposure and liquidity to facilitate future investments.
The bottom line? If you properly vet each and every domestic real estate investing opportunity that may seem like a “no brainer” at surface level, then you are more likely to increase the viability, profitability and sustainability of your domestic real estate investment portfolio.
Global real estate investing authority Terica Kindred is the Founder and CEO of OutEstate Investments, specializing in helping citizens in the U.S. and from around the world invest in the U.S. real estate market to help stimulate the American economy. Terica has started businesses on five different continents, and she is also an author, speaker, business consultant and investment strategist. Kindred will soon release her newest book, ‘The Next Global Millionaire,’ offering nine secrets to becoming a successful global investor or entrepreneur. She may be reached online at www.tericakindred.com.
By Jodi Summers
A client was complaining. After nearly a year, we were selling their properties, but on one – a North Hollywood industrial – they had to come up with additional monies, or get their bank to modify the loan to close the deal. Fortunately, the bank was eager to get the property off of their balance sheet. The seller was happy because they weren’t going to lose money on their North Hollywood property, and their LAX industrials were going at close to 2006 prices.
Indeed 2011 has produced a significant increase in loan modification and liquidation activity, but if you bring the offers, the banks will do a deal.
“This drop in values has put many otherwise healthy properties in a position where they will require infusions of additional equity so maturing mortgages can be refinanced,” notes David Blum, managing director, portfolio management, at Urdang Capital Management. “This gives new investors the opportunity to have a lower cost basis than those who bought similar properties a few years ago, providing them with the ability to offer lower rental rates than comparable properties with greater debt burdens.”
The nice thing about Los Angeles Port / Airport area industrials are, while prices have been dropping, lease rates are on the rise. Lease rates were up 6.5%, comparing June 2011 with June 2012. Current L.A. City lease prices are $9.30sf annually. Metro and County numbers are also looking up.
Another factor luring investors to acquire commercial real estate is that aside from a handful of high-end properties in top tier U.S. markets, commercial real estate values generally remain well below the pricing peaks reached during the 2005 to 2007 period. As we’re all aware, the lack of loans, and dropping property values created a rather stagnant real estate market for 2010 and the first part of 2011. For ready buyers, good values can be had.
“The ability to acquire these properties at attractive costs is possible because of the significant amount of commercial real estate debt that will continue to mature over the next four years,” offers Blum.
For current owners, we are in a period of true loan modification. At first, it was little more than “extend and pretend” policies, where lenders and servicers simply extended maturity dates as a way to wait out our Great Recession. Then, in the second half of last year, finally, “true” modifications of principal and interest rate reductions took shape as sellers attempted to release their properties at reduced prices. This activity also opened the doors for banks to release loans they did not want to modify back into the marketplace.
Statistics confirm the strengthening financial market. In the 2nd quarter, the number of banks on the government’s list of institutions most at risk for failure fell, the first drop since before the financial crisis began. 23 lenders came off the list of so-called problem banks during 2Q 2011, dropping the list total to 865; according to the Federal Deposit Insurance Corporation, that’s nearly 1 in 9 banks. Last year’s total of 157 collapsed banks was the highest level since the last severe recession in the early 1990s.
“Banks have continued to make gradual but steady progress from the financial turmoil and severe recession that unfolded from 2007 and 2009,” observes Martin J. Gruenberg, the acting F.D.I.C. chairman.
More positive signs: the nation’s 7,513 banks and savings institutions reported a total profit of $28.8 billion in the second quarter, up nearly 38% from a year ago, and the eighth straight quarter that earnings have increased. Bank loan balances grew for the first time since the second quarter of 2008.
As we move forward in the brave new world of finance, lenders and note holders are cutting deals in SoCal, and only as a last ditch effort are they forcing distressed loans into the marketplace.
Institutional investors, who raised impressive sums for speculative acquisition in 2009 and 2010, are finally investing their monies in investment-grade commercial real estate…with single tenant NNN industrials being a choice real estate option.
According to the latest CoStar Commercial Repeat-Sale Indices, transaction activity increased 24% from 2,176 sale pairs in the first quarter of 2011 to 2,690 sale pairs in the second quarter of 2011. Investment grade transaction activity drove most of the increase.
We’re here to help you with your commercial and investment property needs. Please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – email@example.com or 310.392.1211, and let us move forward together.
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