Southern California Industrial Real Estate Blog

MAKING INDUSTRIAL PROPERTIES GREEN

MAKING INDUSTRIAL PROPERTIES GREEN

The U.S. Green Building Council’s Leadership in Energy and Environmental Design designation has emerged as the benchmark for environmental development. And industrial developers now are seeking out this certification for their properties.

Including Industrial

Historically, the perception has been that only build-to-suit office projects were eligible for LEED certification because industrial projects, many of which are speculative, were unable to fit into the narrow certification criteria. However, with USGBC’s multitiered approach to evaluation, industrial developers now have a valuable tool kit for obtaining this sought-after status.

The LEED program has four distinct certification levels based on a 69-point rating system. The system evaluates sustainable sites, water efficiency, energy and atmosphere, materials and resources, indoor environmental quality, and LEED innovation credits. The certification levels for LEED construction include LEED Certified (26-32 points), LEED Certified Silver (33-38 points), LEED Certified Gold (39-51 points), and LEED Certified Platinum (52-69 points).

The rating system is significant to industrial developers because its emphasis on mechanical systems — such as heating, ventilating, and air conditioning — typically is confined to large indoor environments with a higher density of employees. While industrial developers initially dismissed the option of earning certification points, attaining a LEED-Certified or LEED-Certified Silver designation for a spec industrial building is possible through the introduction of other sustainable building features and construction methods.

Employing these classifications as a template for constructing a green industrial facility allows for an a la carte approach to development, based on managing the design and construction process with the ultimate goal of achieving a specific certification level. As with any development project, experience and planning are paramount to this strategy’s proper implementation, as installing individual sustainable features in a cost-effective and efficient manner requires an understanding of the different product types.

For example, waterless urinals typically are not installed in spec construction, and on-site water retention often requires a higher level of advanced planning to accommodate for unique site conditions. As a result, pursing LEED certification begins even before project plans are drawn.

Green Industrial Features

Standard landscaping elements such as grass berms now are giving way to sustainable features such as bioswales, which are drainage systems that retain water onsite. French drains, which reduce water discharged into sewer systems also are a new sustainable feature for buildings. Meanwhile, interior elements such as clerestory glass, which provides ambient lighting and requires less energy;

daylighting, which uses strategically placed windows and skylights to provide natural light; recycled carpet;  non-volatile organic chemical-emitting paints and finishes; and

energy efficient mechanical systems can reduce operational expenses and help earn valuable points for LEED certification.

Financing the Projects

Though designing and building green facilities remains more expensive at the onset, there remains an opportunity to recover these costs once the facility is constructed. In the long run, LEED-certified products are expected to experience higher renewal rates and lower turnover and absorption time on the market. In addition to tenants making a push to become stewards of the environment, they also will benefit from a number of practical issues.

The increased energy efficiency of LEED-certified industrial facilities results in lower operating costs while also creating a healthier work environment. Once exposed to these sustainable environments, tenants may place a premium on remaining in the space for both the health of their business and their workforce.

Industrial real estate developers currently find themselves at the threshold of a new era in real estate. With LEED certification now a reachable benchmark for most new industrial facilities, both small and large businesses are making a push for green, finding that building sustainable product is finally financially justifiable.

More details

info courtesy of Lance Ryan

Industrial Property Sales Update

 “We’re seeing no significant changes in vacancy rates or rent growth, so the fundamentals in commercial real estate still seem to be respectable,” notes NAR Chief Economist Lawrence Yun. “Under normal circumstances, near-full occupancy coupled with positive rent growth would be of strong interest to investors, but we’re not seeing that. The credit crunch has filtered into the commercial real estate market.”

Industrial activity remains strong in port and distribution hubs, with relative weakness around many manufacturing centers. International trade continues to play a pivotal role in industrial real estate.

Vacancy rates in the industrial sector will probably average 9.6 percent in the fourth quarter of 2008, up from 9.4 percent in the same period last year. Annual rent growth is projected at 3.3 percent by the fourth quarter, down from 3.6 percent at the end of 2007.

The areas with the lowest industrial vacancies include Los Angeles; San Francisco; Tucson, Ariz.; Salt Lake City; Orange County, Calif.; and Portland, Ore., all with vacancy rates of 6.1 percent or less. Los Angeles is expected to remain a landlord’s market for the next four to five years.

Net absorption of industrial space in 58 markets tracked is likely to total 134.7 million square feet in 2008, up from 120.2 million last year. Industrial transaction volume in 2007 was a record $46.0 billion, compared with $38.9 billion in 2006.

http://www.realtor.org/press_room/news_releases/2008/fundamentals+holding+in+commercial+real+estate

THE CURRENT STATE OF COMMERCIAL REAL ESTATE FINANCING

 THE CURRENT STATE OF COMMERCIAL REAL ESTATE FINANCING ACCORDING TO COSTAR

 CoStar (http://www.costar.com) -the self-proclaimed “#1 Commercial Real Estate Information Company in the U.S. & U.K.” has released a very informative + well researched piece on the commercial real estate market called “State of CRE Financing Part I: Beyond What Was Expected Residential Depression — Not CRE Market Conditions — Is the Main Force Constraining “Commercial Real Estate Lending.”

  We found this highlight from the lengthy investigation to be an illuminating synopsis of where the commercial market is at, how it got there, and an enlightened speculation on where the market will go…

It All Starts with Housing

 To understand current commercial real estate market conditions, the housing market deflation cannot be ignored. It all started with the unexpected rapid implosion of the subprime mortgage market in February of last year. That was the event that wiped out an entire support base on which housing sales were based: the first-time and low-income homebuyer.  

When that support cracked, so did a second column of support: the speculative investor that hoped to flip a property in a year or two. Then the whole housing market came tumbling down.

It triggered an immediate drop in value of hundreds of billions of dollars of mortgage-backed securities, which triggered the substantial write-off in values of assets at financial houses, closed the spigot on the issuance of new mortgage-backed securities and eventually shut down additional real estate lending. It was the proverbial house of cards collapse.

The chain reaction effect is important to understand because it explains in a lot of ways why banks, lenders and Wall Street have so far seemed to be caught off guard.

“The real problem today is what’s happening ‘around’ our loans not so much what’s happening ‘with’ our loans,” said George L. Engelke, Jr., chairman and CEO of Astoria Financial Corp.

If you’ve got a community that’s got 50 houses for sale and they are all in foreclosures or financial trouble, Engelke noted, “People can’t get a transaction done.”

No matter how well banks monitored the individual loans in their portfolio or the performance of their customers, it was not enough to see how they would be impacted from the chain reaction. Likewise, no matter how good customers’ credit condition looks on paper, it is still hard to get a loan.

Because of that, it is not unusual now to see banks writing down the value of loans that they normally would not have and not making loans that normally would have.

Bryan Jordan, CFO of First Horizon National Corp. gave this account of one loan that was current and in good standing.

“We observed the draw inactivity on construction projects in California City [in Kern County east of Bakersfield, CA],” Jordan said. “Our investigation identified that the local city had placed a stock order on construction by this customer due to past due real estate pattern and additional lengths placed on the property. Although the loan remained current due to interest reserves, the credit was classified substandard in a new appraisal order. Following receipt and review of the appraisal, the loan was charged down to the estimated current realizable value.”

“Given the deteriorating market condition,” Jordan said, “we continue to be proactive in identifying problem loans and in writing them down to realizable value, which includes disposition costs and adjustments for market declines since the last appraisal.”

According to bankers, appraisers are also becoming more aggressive in writing down the value of real estate assets.

“What happened is that we are going through a very challenging time that when you have major developers like KB Homes and all of the big ones who are suddenly walking away from big developments in this kind of environment, appraisers are turning to extremely, extremely pessimistic views,” said Dominic Ng, chairman, president and CEO of East West Bancorp.

Trickle Down into Commercial Real Estate

John D. Schwab, executive vice president and chief credit officer of Citizens Republic Bancorp Inc. said his bank saw 36 commercial real estate loans slip into the non-performing category.

“About half of them were what I’m going to call much smaller income producing properties where these are retail strips where there is vacancies where the cash flows are no longer supporting the currency of loans,” Schwab said. “The chunkier ones happen to be, as I mentioned, both land development and income producing.”

Harris H. Simmons, chairman, president and CEO of Zions Bancorporation, said his staff is seeing anecdotal evidence of a little bit of commercial deterioration in trades and businesses that are related to that market, for example, firms such as plumbers, electricians and so forth.

John Allison of BB&T said his banks are seeing the housing impact trickle into a host of other commercial businesses.

“I think the impact in the automobiles business is pretty dramatic,” Allison said. “I think the fact that people have less comfort in the equity in their homes, [and that lack of] security makes them less willing to do bigger purchases. It’s impacting the furniture business pretty significantly. Obviously people buy furniture when they buy new homes and that’s a deferrable purchase and so you have furniture retailers struggling.”

Nonetheless, bankers are still generally comfortable with most aspects of their office, industrial and retail real estate portfolios and clients.

Whether you could translate auto dealer and furniture retailers’ problems into shopping centers problems is an unknown, Allison said.

“I am in the process and every spring I get to visit all 33 of our community banks and I am having the opportunity to talk to lots of our small business, middle-sized business clients,” he said. “And the story if you are in the residential construction development business is that you aren’t having any fun.”

That pessimism hasn’t hit the commercial market yet, Allison added.

“If you are in the commercial end of the market, most everybody says things are fine, although they may not be fine going forward. I am not getting anybody on the commercial side that’s not pretty optimistic,” he said.

“One thing is that in the early ’90s a lot of the downturn was commercial, not residential, because you had so much excess buildings,” Allison said. “And this time around, you probably have some excess buildings, but it’s nothing like the early ’90s, where you had so much excess lot development in retrospect on the residential side. I think that’s why you are having a much more serious correction on the residential versus commercial.”

Gregory Smith, CFO and senior vice president of Marshall & Ilsley Corp., said, “fundamentals in the apartment, medical office, and warehousing segments are positive. Fundamentals in hospitality are currently good, however, we anticipate softening reflecting the economy in general and high gas prices. Retail and office demonstrates softening.”

Dominic Ng of East West Bancorp, said the occupancy rates of shopping centers, hotels, industrial warehouses and office buildings in his Inland Empire market in Southern California are still holding up.

“Despite all of the concern about recession and so forth, we have not seen any kind of increase in vacancy rate in any substantial manner,” Ng said. “There’s a huge relief because interest rates have come down so much due to the Fed fund reduction. Now our customers used to pay about 7.5%, 8% to us and now they’re paying, about 5.5%, 6% and they may be even lower but the rents are not dropping, so they’re picking up even more cash flow.”

On top of that, Ng said, unlike in the residential sector in which there is a huge glut of inventory, there is very little supply of commercial properties.

**

Excerpted from a story from Mark Heschmeyer 

Read the article in its entirety at: 

 http://www.costar.com/News/Article.aspx?id=3B32371C95EEDB636851A22C74B28A1E&ref=100

10 REASONS IT MAKES SENSE TO BUILD GREEN

10 REASONS IT MAKES SENSE TO BUILD GREEN

The Urban Land Institute and the U.S. Green Building Council offer 10 reasons that green development makes smart business sense:

1) Upfront costs can be recovered

2) Integrated design lowers operating costs

3) Better buildings mean better employee productivity

4) Green technology provides healthier indoor air

5) Healthier buildings reduce owner liability

6) Tenants’ costs can be lowered

7) Property values will rise

Public and some private financial incentives are available

9) Recognition as a good community steward builds public relations and

10) Using best practices yields more predictable results.

The Urban Land Institute is a nonprofit education and research institute whose more than 20,000 members represent all aspects of land use and development disciplines.

The ULI uses a variety of media to clear up misinformation and help green and sustainable development become a standard practice.

LIVING SPACES HAS A GREEN WAREHOUSE

LIVING SPACES HAS A GREEN WAREHOUSE

A modern ground water regeneration system that will take the first three-quarter inches of rainfall and direct it into the ground water system,  a cool white single-ply roof and an energy-efficient HVAC system are among the green elements in the newly Living Spaces Furniture 188,000-sf warehouse and showroom in Panaroma City.

The new Living Spaces facility replaces the largest metal building at what was formerly General Motors’ largest auto factory. In the $20 million conversion, Oltmans Construction Co. of Whittier, CA demolished half of an obsolete 220,000-sf light manufacturing building with 18-foot clearance and created a modern 80,000-sf warehouse featuring 38-foot interior clearance. The general contractor then took the balance of the building and converted it into a contemporary 108,000-sf showroom with 10,000 sf of mezzanine office space.

Living Spaces is California’s largest furniture store and is noted for same-day delivery and a variety of other consumer services. The new Panorama City facility is the company’s first in the San Fernando Valley and will employ approximately 300 workers. The company’s other facilities are its headquarters in La Mirada, CA and facilities in Rancho Cucamonga, CA.

As part of the project, Oltmans also renovated the entire site with new landscaping, paving, curbs and gutters. The project was designed by OCIO Designgroup of San Diego.

http://www.cityfeet.com/News/NewsArticle.aspx?Id=28739

info courtesy of By Bob Howard at GlobeSt.com

U.S. Industrial Production Change is Negligible

U.S. Industrial Production Change is Negligible   So-so economic news has hit the Industrial Sector. The Federal Reserve Board has announced that industrial production in the U.S. fell by -0.5% in February (seasonally adjusted), after increasing by 0.1% in January and by 0.2% in December.  The weakest performance were turned in by utilities (-3.7% over the month, due to February‘s unusually warm weather), furniture manufacturing (-3.0%), wood products (-2.9%), printing (-1.9%), and motor vehicles & parts (-1.0%).  Meanwhile, output of high technology products (computers & peripherals, communications equipment and semiconductors) rose by 1.1% in February, following increases of 0.3% in January and 0.6% in December.  Excluding automotive and high tech, manufacturing output fell by -0.3% last month, held back by declines in production of construction supplies (-0.8%), business supplies (-0.7%), and materials (-0.4%).   The industrial sector looks marginally brighter if we look at the near future.  Total industrial production last month was up by 1.0% compared to February 2007.  Output of high tech products has risen by 17.3%, a very healthy pace.  However, production of motor vehicles and parts was down by -2.7% over the year.  Excluding these two important sectors, industrial production increased by just 0.7% over the year.  Business equipment was the best performer, with output up by 4.4%.  Production of materials grew by 1.1%.  Meanwhile, output of construction supplies fell by -1.0% from the year ago level, and production of business supplies was down by -0.9%.     Experts state that weakness in the housing- and automotive-related sectors is clearly dragging down U.S. manufacturing.  The only real strength has been in the high technology and aerospace sectors, both important to California and the Los Angeles area.     (Nancy D. Sidhu) http://laedc.org/eedge/index.html#6   PR:  http://federalreserve.gov/releases/g17/Current/g17.pdf