Southern California Industrial Real Estate Blog

5,250 sq.ft. Retail/Office building in Historic Tucumcari, New Mexico

5,250 sq.ft. Retail/Office building in Historic Tucumcari, New Mexico
 
My client has a 5,250 sq. ft. commercial building (retail/office) on Main Street in Tucumcari, New Mexico (on I-40 between Albuquerque and Amarillo) and my asking price is $65,000.  Inside the building are a number of small offices, several large rooms and 2 bathrooms. The present tenant has been paying $900 mo. rent for the past 6 years but the lease expires later this year.
 
Contact Jodi Summers if you have anyone who is interested.
 

Jodi Summers

Director

Investment Division

Boardwalk Realty, Santa Monica

tel: 310. 309.4219
fax: 310.392.1001
jodis@boardwalkrealty.com
www.SoCalIndustrialRealEstateBlog.com

www.santamonicalandmarks.com

Tax Overhaul Unlikely

Tax Overhaul Unlikely

The National Association of Realtors tax counsel Linda Goold recently spoke on potential tax challenges. Goold pointed out that a full-fledged revamping of the federal tax code hasn’t taken place for 20 years and seems unlikely in the next few years, given the current political climate. But that doesn’t mean that real estate can relax, said Goold. One issue is that many high-profile economists don’t view real estate as a productive asset, like stocks and manufacturing. “We must fight this,” she said.

Another challenge could grow out of the increasing need for revenue to cover recent tax cuts and government programs. Goold pointed out that real estate accounts for between 25 percent and 30 percent of tax breaks in the current tax code — bested only by employer deductions for health care benefits and deductions for 401(k) and other pension plans. With the first baby boomers set to turn 65 years old in the next five years, “where do you think a government starved for revenue is likely to look? Real estate,” said Goold.

For more information go to: http://www.realtor.org/RMODaily.nsf/pages/News2006051902?OpenDocument
— By Mariwyn Evans for REALTOR® Magazine Online

Interest Rates Drive SoCal Market Change

Interest Rates Drive SoCal Market Change

Thursday, May 18, 2006 -  LOS ANGELES-The slow-but-steady rise in interest rates has squeezed already tight returns on commercial real estate in Southern California, producing a “disconnect” that will take a while to adjust, a new study concludes. Hessam Nadji, SVP and director of research at Marcus & Millichap, told GlobeSt.com that cap rates “haven’t responded yet” to recent interest rate increases but he expects to see them adjust over the next six to nine months.  With interest rates having increased about 60 basis points over the past few months, “You would expect a price correction that would adjust cap rates,” Nadji says. However, that hasn’t happened yet, so Nadji expects to see a “market transition” in the Southland this year. The transition means that sellers will need to adjust their expectations on prices, Nadji says. To buyers, he says, “Don’t overlook other Southern California investments where even a minor value add can improve returns significantly.” This article is an excerpted an article by Bob Howard of GlobeSt.com

Europe catches up with UK commercial property

Europe catches up with UK commercial property

UK investment property is performing well compared to other markets but no longer leads the pack in Europe, says the RICS Global Property Survey.

Investor and business demand has started to pick up in other major European centres, notably in Germany and Italy, and investment in commercial real estate worldwide is rising at its fastest pace in 18 months.

The sector is shaking off the pressures of high oil prices and renewed investment competition from strengthening stock markets. RICS has forecast total returns on UK commercial property to attain a healthy 17% in 2006, falling to 9% for 2007.

Investors are piling into European commercial property regardless of sluggish, static, or even negative rental trends.

Business property demand is firm in Germany and France but high levels of vacant space are still holding back rents.

In the UK, rents are picking up, primarily due to a stronger London office market which has benefited from rapid growth in the financial sector.

The emerging markets of Asia and Europe topped the growth league in business demand for commercial space in the second half of 2005. In Asia – notably India and China – demand is driven by breakneck economic expansion, while economic growth following EU membership has created high demand for office space in eastern and central Europe.

Demand for office space is rising not just in boom towns like Shanghai, but also in the previously stagnant Tokyo market.

Emerging economies are seeing the strongest rises in investment activity. Much of this in China and India is purely domestic as foreign investors remain cautious about opaque real estate markets.

This is less true of the fast-modernising markets in emerging Europe where foreign money is particularly important.

RICS chief economist Milan Khatri adds:

“Low interest rates have been the primary fuel for a surge in demand, though by the end of 2006 we are likely to see these rising across the 12 country eurozone, the USA and Japan for the first time since the late 1980s.

“With global bond yields already on the rise for these three economic blocs, some of the impetus will come out of the property market next year as foreign investor interest cools. As such, we believe that the tremendous returns made by investors in recent years are unlikely to be sustained in more mature property markets.”

RICS is the professional source of property related knowledge, providing independent, impartial advice to governments and global organisations.

More info can be found at:  http://www.rics.org/

Good Times to Continue for Commercial Real Estate

Good Times to Continue for Commercial Real Estate

(May 19, 2006) — WASHINGTON Falling vacancies, rising rents, and continued capital flows from private and institutional investors all promise a great 2006 and 2007 for commercial real estate, NAR’s Chief Economist David Lereah told commercial REALTORS® at Thursday’s Economic Issues & Commercial Real Estate Business Trends Forum. The highest corporate profits in 15 years and a generally strong economy the driving force behind commercial should ensure that all major property types, with the possible except of retail, perform well this year. Lereah expects a 3.5 percent GDP growth during 2006 as the economy adds about 2 million new jobs and wages pick up. Office vacancies are at their lowest rates since 2001, sitting at 12.6 percent in first quarter 2006. Net absorption is almost twice the pace of construction, contributing to the 5 percent rent increase Lereah projects for the sector in 2006. Industrial property is also strong, helped by significant import and export activity, extremely low retail inventory to sales ratios, and rising orders for durable goods. Industrial vacancies have fallen to 9.1 percent in first quarter 2006, and rising industrial production may indicate a need for more manufacturing space, said Lereah. — By Mariwyn Evans for REALTOR® Magazine Online For more information go to: http://www.realtor.org/RMODaily.nsf/pages/News2006051902?OpenDocument

For more information go to:

WHAT REAL ESTATE BILLIONAIRES HAVE IN COMMON

 
WHAT REAL ESTATE BILLIONAIRES HAVE IN COMMON

Didja know that 46 out of the world’s 691 billionaires made their fortunes in the real estate industry. According to Forbes magazine’s annual list of “The World’s Richest People,” this elite group have quite a bit in common between their habits, lifestyles, and business styles. Here are some unifying qualities shared by America’s richest real estate mogus.
1.                 Go commercial. Billionaires who make their fortunes in real estate don’t do it in residential. They are moguls with an empire of owned and operated office buildings, shopping centers, apartment complexes, and luxury hotels. That strategy works particularly well for “America’s richest landlord,” 73-year-old Newport Beach Resident Donald Bren, the wealthiest man in American real estate. This self-made millionaire, with a net worth of $4.3 billion, made much of his money as chairman of The Irvine Company, a privately held real estate investment company known for creating balanced, sustainable, quality communities like the 93,000-acre Irvine Ranch in Orange County. Finished plots sell for more than $1 million an acre. The ranch also has 400 office buildings, 35 shopping centers, 80 apartment complexes and 2 luxury hotels. Bren is 6^th wealthiest real estate billionaire and the 122^nd richest man in the world. He is also one of real estate’s great philanthropists.
2.                 Do more than invest. Making big money in real estate goes beyond buying property and waiting for it to appreciate in value. It’s all about improvements. John Sobrato of Sobrato Development Companies calls Atherton, home, but he made his fortune in Silicon Valley – for more than 40 years, Sobrato’s SDC has developed real estate in Silicon Valley - specializing in facilities for high tech and R&D companies.  Another self-made man, he began in 1953 with one of the first “tilt-up” buildings in Santa Clara County.  Sobrato, who owns and manages the buildings it constructs and maintains single tenant occupancy, boasts a portfolio of $1.5 billion.  His assets include land throughout Silicon Valley, San Jose, Fremont, Newark and Santa Clara and he has developed in excess of 7,000 rental units.
3.                 Be able to see the property for what it could be. Just because you buy a shopping complex doesn’t mean that’s the highest and best use of the property. Know the local zoning codes and be open to the possibilities…Los Angelino Ed Roski did just that. Roski is the founder of Majestic Realty, the largest commercial builder in Los Angeles, boasting an office, retail and industrial portfolio totaling more than 55 million square feet. The USC grad with a net worth of $1.1 billion saw the highest and best use of the formerly blighted area near the convention center and built the Staples Center with Philip Anschutz. Roski is also a minority owner of the Lakers and the Kings. Headquartered in City of Industry, Majestic Realty also has offices in Atlanta, Dallas, Denver, and Las Vegas – where they have a 400-acre business park and 3 million square feet of casinos.
4.                 Be tenacious and relentless. Billionaires don’t let obstacles or pitfalls keep them from achieving their goals. Newport Beach billionaire George Argyros is the grandson of Greek immigrants. Argyros began by running a Palm Springs grocery. He graduated to buying and selling corner lots at busy intersections for gas stations.  Turned to apartments in 1968. Today, as part of Arnel & Affiliates, Argyros manages apartments and commercial properties in southern California. He has a net worth of $1.2 billion.
5.                 Have a thick skin. People can be resentful and jealous of successful people. Don’t let criticism of your work deter you from your goals. Consider Red Emmerson – the second wealthiest real estate titan in California. Emmerson is the largest private forestland holder in North America - assets include 1.52 million acres in Northern California, timberland stretching more than 350 miles from Mount Shasta to Yosemite National Park. For the last 20 years, while other logging companies retrenched or relocated, Emmerson, and his company - Sierra Pacific Industries - quietly grew into the second-largest private landowner in the United States. Needless to say, Sierra Pacific is a darling of environmental groups.
6.                 Have superior information. If you do more research than your competitors, you’ll have an advantage in any transaction. Self-made billionaire Carl Berg was a loan processor before investing in Silicon Valley commercial real estate with John Sobrato in the 1960s. He struck out on own, forming Mission West Properties, a real estate investment trust (REIT) in Silicon Valley. Berg owns a controlling stake in the REIT, which focuses on single-tenant research and development and office properties in Silicon Valley. Mission West now owns and manages more than 100 properties, major tenants include Microsoft and Apple Computer. Currently, the Atherton-based businessman boasts a portfolio of $1.2 billion.
7.                 Don’t accept the cards you’re dealt. Forbes notes that while one-third of the world’s 46 billionaires who make their money in real estate inherited and then grew their fortunes, two-thirds are self-made. Stockton-based A.G. Spanos Companies are known for building, managing, and selling multi-family housing units; constructing master-planned communities, and developing land. Although California based, they have expanded to build more than 100,000 apartments in 18 states since 1960. A.G. Spanos Companies have also developed top-class office space in San Joaquin County. Alex Spanos, owner of the NFL’s San Diego Chargers, operates the company with his sons Dean (president and CEO) and Michael Spanos (EVP). Spanos, whose net worth is $1.1 billion has pledged $200 million to San Diego for a new stadium for their football team.
8.                 Live in California. Of the 21 U.S. billionaires who made their fortune in real estate, more than one-third live in Atherton, Los Angeles, Newport Beach, Palo Alto, or Stockton.
9.                 Get, and stay, married. Of the 43 real estate billionaires whose marital status is known, according to Forbes, 37 are married, while only three are divorced and three are widowed.
10.             Go back to school. Of the 26 real estate billionaires whose educational attainments are known, 20 have a college degree or higher. Five made it on high school diplomas, and one is a high-school dropout. John Arrillaga is a big donor to alma mater Stanford University. Arrillaga  + Richard Peery are two of 2 of Silicon Valley’s biggest commercial landlords. In the 1960s, they converted farmland into pricey office space. Peery and Arrillaga are  lifelong business partners who avoid debt, and the media. Each has net worth of $1 billion.
For more on Southern California commercial properties there is a great information blog at www.socalindustrialrealestateblog.com.
 

 

Office space needed in Southern California

Office space needed in Southern California Last year was an incredible year for office building purchases. Across the country, $99.7 billion of office properties traded hands — a 34 percent increase over 2004, and more than one-third of the $268 billion in investment grade commercial real estate transactions in 2005. Locally, buyers spent close to $5 billion on office buildings in LA County last year — up from $4.2 billion in 2004, which was 6 percent more than 2003, and double the 2001 figure, according to Cushman & Wakefield Global Real Estate Services.   

“There have been gobs and gobs of money thrown at commercial real estate,” says Nicolas Buss of PNC Real Estate Finance.
 
Southern California has the tightest industrial market in the U.S., and a rapidly tightening office market. The challenge is demand versus supply. There is not enough land available for new commercial development to accommodate business growth. Still, we try. There were a total of 252 major expansions in the five-county region during 2005, according to the Los Angeles County Economic Development Corp (LAEDC).
 
Office vacancy rates have been declining across the Los Angeles five-county region since the second quarter of 2004, a period when businesses started hiring more employees. Among the growing white-collar businesses in Southern California are law, accounting, banking and  management consulting — more employees equals the need for more office space. Between fourth quarter 2004 and fourth quarter 2005, LA office vacancy rates dropped from 14.8 percent to 11.2 percent; Orange County dropped from 10.7 percent to 7.2 percent; Riverside-San Bernardino counties went from 9.5 percent to 7.0 percent; and Ventura County was down from 11.2 percent to 9.0 percent a year ago.
 
The LAEDC has calculated office space need by industry sector: “Professional services,” which includes accounting, law, architecture  and engineering, as well as personnel services, posted 52 major expansions in 2005, up from 41 in 2004. “Logistics” had 26 major expansions, down from 34 in 2004. The “finance and insurance” industry had 12 major expansions in 2005, down from 27 in 2004. The “entertainment industry” had 11 major expansions in 2005, down from 12 in 2004. “Apparel and textile” had 10 major expansions, down from 14 in 2004. “Aerospace/defense” and “hi-tech” both had nine major expansions compared to 10 during 2004. Three of Southern California’s major projects in 2005 were out of state relocations from Colorado, Nevada and Texas — up one development project from the year prior. Foreign firms accounted for 18 major office expansions during 2005, unchanged from the previous year. The expansions came from Australia, Canada, Chile, Germany, Japan, South Korea,
Sweden and United Kingdom.
 
“The overall economy is continuing to grow, and a lot of the growth is coming in sectors that are big users of office space,” said economist Jack Kyser of the LAEDC.
 
Cushman & Wakefield reported that at the end of the first quarter of 2006, asking rents averaged $2.14 per square foot per month, up 9 cents from the first quarter in 2005. By the end of the year, the National Association of Realtors predicts that office vacancy rates will be around 11 percent nationally, with rates dipping as low as 5 percent in parts of Southern California.
 
Meanwhile, for those buying and selling office buildings, prices on average have soared above $200 per square foot. The Los Angeles Times reports that the average price per foot for office buildings rose to $196 in 2004, up from $156 in 2003. Prices downtown hit $350 a foot this year. Sale prices are well above $400 per square foot in downtown Santa Monica.
 
Nationwide, the National Association of Realtors reports that office rate vacancies were 12.6 percent for the first quarter of 2006, predicted to drop down to 12.1 percent for the second quarter. This is the first time since the summer of 2001 that the national office vacancy rate has dropped to under 13 percent.
 
Options are still sizable for a small-business tenant who uses less than 5,000 square feet, “but companies that need more than 50,000 square feet will have very limited choices,” said Jerry Porter of Cresa Partners, tenant representatives.
 
The LA Times stated that downtown’s vacancy rate fell to 14.6 percent from 16.3 percent in the first quarter and rents climbed 24 cents to $2.29. Other markets including Pasadena and the San Fernando Valley also have tightened. Average monthly asking rents in Santa Monica were the highest in the county at $3.61 per square foot, a 26 percent increase from a year ago. The vacancy rate fell to 4.6 percent from 7.5 percent a year ago.
 
“We are going to be in a much stronger landlord market for the next 24 to 30 months until more space comes on line,” Porter noted.
 
Landlords like the Inglewood-based Trizec Properties Inc. are expected to raise rents and reduce concessions, said Trizec vice president Patrick Lacey. Trizec has just taken title to several large Westside office buildings, which it is purchasing from Arden Realty Inc. as part of a $1.6-billion deal.
 
“We bought into that market because we saw that’s where the growth is going to be,” Lacey said.
 
New development is modest and will not accommodate demand. The Construction Industry Research Board noted that during 2005, industrial building permits valued at $755.8 million were issued in the five-county region. Los Angeles County’s industrial building permit value was $277.4 million; Orange County’s total was $26.9 million; and
Ventura County had $20.1 million in industrial permits. The Inland Empire had the biggest industrial building permit total: $431.5 million.
 
“Gross and net absorption reached five-year highs in most markets across Southern California during 2005, contributing to declining vacancies and increasing rents throughout the region,” said Erika Gjovik, director of research for GVA DAUM. “As continued job growth is forecasted for Southern California in 2006, we expect vacancy to hover near the historically low levels reached during 2005.”
 
For more on Southern California commercial properties, there is a great information blog at www.socalindustrialrealestateblog.com.
 
(Jodi Summers is director of the investment division at Boardwalk Realty Santa Monica. For your real estate needs, e-mail Jodi Summers at  jodis@boardwalkrealty. com, call 310-309-4219, or visit www.santamonicalandmarks.com.)
  

U.S., Canada Make Softwood Lumber Deal

—————————————————————————U.S., Canada Make Softwood Lumber Deal

WASHINGTON - Yeah! An agreement on softwood lumber will resolve a major trade irritant that has roiled relations between the United States and Canada for more than two decades has been settled.

The deal was announced by the countries’ top trade negotiators late Thursday in Washington after the two sides ironed out some last-minute glitches.

President Bush called Canadian Prime Minister Stephen Harper from Air Force One to congratulate him.

“This agreement shows how NAFTA partners can overcome differences and work together,” Bush said in a statement later, referring to the North American Free Trade Agreement among the United States, Canada and Mexico.

Harper, who took office in February as the Conservative Party returned to power for the first time in 12 years, had made resolving the dispute a top priority in his effort to smooth relations with the United States, which had been strained by a variety of issues, including the U.S.-led war in Iraq.

Harper, to a standing ovation in the House of Commons in Ottawa, said, “It’s a good deal that resolves this long-standing dispute and allows us to move on. Today is a great day for Canada.”

Members of Congress from timber-producing states praised the deal. Sen. Max Baucus, D-Mont., said it would close the book “on a dispute that has poisoned U.S.-Canada relations for far too long.”

Senate Agriculture Committee Chairman Saxby Chambliss, R-Ga., said, “Nothing has plagued the softwood lumber industry in my home state of Georgia more than this issue.”

Not everyone was happy. Bill Graham, opposition leader of the Liberal Party in the Canadian Parliament, said the deal was only good news for the U.S. lumber industry and that the North American Free Trade Agreement, whose mediating panels have often ruled in favor of Canada, had now lost its teeth.

“Unfortunately, it’s a great day for American industry, for American policy and for American trade - and it’s a disaster for Canada and free trade,” Graham said.

Under the agreement, the United States will remove penalty tariffs on Canadian softwood lumber imports that started at 27 percent in 2002 and now average around 11 percent.

In place of the U.S. tariffs, Canada agreed to impose taxes on its lumber exports to the United States if the price of lumber falls below a specified level. Softwood lumber is currently averaging $370 per 1,000 board feet and that price would have to fall to $355 per 1,000 board feet to trigger the Canadian border tax, which would start at 5 percent and rise to 15 percent if prices kept falling.

The U.S. goal is to use the Canadian tax to keep Canada’s share of the U.S. softwood lumber market from exceeding the current level of around 34 percent. However, the deal does not impose any specific cap.

Analysts said the sliding scale of Canadian taxes will mean that Americans buying new homes will not get a price break from the deal.

“This is all organized to keep competition down and prices high for U.S. producers,” said Gary Hufbauer, an economist at the Institute for International Economics, a Washington think tank.

Jerry Howard, executive vice president of the National Association of Home Builders, complained that the deal “would provide a massive subsidy to the U.S. timber industry at the expense of millions of American consumers.”

As part of the deal, the United States agreed to return to Canada $4 billion of the nearly $5 billion in penalty tariffs collected on Canadian imports. Half of the remaining $1 billion would be given to the U.S. industry to help cover legal expenses, a point that raised the ire of opposition leaders in Canada.

“It’s outrageous, it’s a sellout, it’s a crime that the Americans would keep a billion dollars of money that seven decisions have now said they shouldn’t have,” said Jack Layton, the leader of the opposition New Democratic Party, referring to rulings by various trade panels that the U.S. duties were improper.

The Coalition for Fair Lumber Imports, the powerful U.S. industry group that has led the fight against Canadian imports, said it could support the terms as U.S. officials have described them.

The outline of the agreement reached Thursday must now be fleshed out with legal language, a process that was expected to take between one and two months.

Industry groups from both countries will have to make various commitments to put the deal into effect. In Canada, the parliament will have to approve the new border taxes that would take effect if lumber prices fell.

While an earlier effort to resolve the lumber dispute in 2003 collapsed because of opposition from Canada’s provinces, officials said they believed this deal was more likely to go through. Harper said he already had the backing of the key lumber-producing provinces of British Columbia, Ontario and Quebec.

—

By MARTIN CRUTSINGER

Source: Associated Press/AP Online

Publication date: 2006-04-28

Associated Press writers Beth Duff-Brown in Toronto and Matthew Daly in Washington contributed to this report.

GVA DAUM’s Overall Industrial Vacancy Rates

GVA DAUM’s Overall Industrial Vacancy Rates

“Gross and net absorption reached five-year highs in most markets across Southern California during 2005, contributing to declining vacancies and increasing rents throughout the region,” explains Erika Gjovik, director of research for GVA DAUM. “As continued job growth is forecasted for Southern California in 2006, we expect vacancy to hover near the historically low levels reached during 2005.”