Southern California Industrial Real Estate Blog

Commercial Property Prices Drop

Commercial property prices declined 3.5 percent in May, their largest monthly drop since credit markets went into turmoil about a year ago.

Pricing in May was down 8.8 percent from its peak last October, as measured by Moody’s/Real Commercial Property Price indices. The indices’ all-property type component has dropped every month since registering a 2.1 percent gain in February.

Info from http://www.crenews.com/

WHERE TO BUILD WEALTH

Best Cities for Building Wealth

Salary.com, which provides compensation information, has ranked the best and worst cities in which to build personal wealth.

Salary.com’s salary value index compares local salaries, the cost of living and unemployment rates among U.S. cities with populations greater than 250,000.

Other considerations including diversity of industry, education level of the cities’ population, proximity to post secondary institutions, percent of population below the poverty level and median travel time to work.

“The most favorable cities offer the largest difference between pay and costs,” says Bill Coleman, chief compensation officer.

Cities at the bottom of the list typically represent the places where living is the most expensive and pay differentials are not proportionately inflated. Cities at the top are headquarters for large companies, have appealing amenities and are growing.

Here are the five cities at the top and bottom of the list:

Best Cities to Build Personal Wealth

1. Plano, Texas

2. Aurora, Colo.

3. Omaha, Neb.

4. Minneapolis

5. Albuquerque, N.M.

Worst Cities to Build Personal Wealth

1. New York

2. Washington

3. Los Angeles

4. Honolulu

5. San Francisco

Source: Salary.com (06/30/08)

http://www.realtor.org/RMODaily.nsf/pages/News2008070901?OpenDocument

U.S. Industrial Production Mixed in June

U.S. Industrial Production Mixed in June

The Federal Reserve Board reported last week that industrial production in the U.S. rose by +0.5% in June (seasonally adjusted), after falling by -0.2% in May and by -0.7% in April. Utility output rose by +2.1% last month, and mining activity increased by +1.1%. Automotive output jumped by +5.4% over the month, a temporary reprieve (reflecting the end of the American Axle strike?). Also, production of high technology products (computers & peripherals, communications equipment and semiconductors) rose by +1.8%. Excluding automotive and high tech, however, manufacturing output fell by -0.2% last month.

Taking a longer view, industrial production last month was up by just +0.3% compared to June 2007. Output of high tech products has risen by +23.6%, a really healthy pace. However, production of motor vehicles and parts was down by -11.9% over the year to June. Excluding these two important sectors, industrial production fell by -0.7% over the year. Among the gainers over the twelve-month period were: utilities (up by +4.0%), mining (which includes oil & gas drilling, +3.8%), and aerospace (+2.4%). Losers included: wood products (-11.9%), textile & product mills (-10.1%), nonmetallic mineral products (-6.2%), apparel & leather (-4.5%), and machinery (-4.3%). (Nancy D. Sidhu)

PR: http://www.federalreserve.gov/releases/g17/Current/g17.pdf

http://laedc.org/eedge/index.html#6

SOLAR FOR INDUSTRIAL AT NO EXPENSE

SOLAR FOR INDUSTRIAL AT NO EXPENSE

Recurrent Energy was formed to develop an ambitious solar program for owners of large portfolios of existing industrial properties. Called “Solar as a Service”, it is a turnkey program under which the company leases rooftops, builds the solar panels and ancillary equipment, then operates the system and charges owners for the energy the system produces for the building.

The buildings stay connected to the local utility grid. Solar power typically displaces the expensive, peak-time utility power, according to Arno Harris, CEO. He says his company’s solar service will typically shave between 5% and 10% from a building’s previous electric bill.

“On large buildings, that can be significant,” he says, “but the more important benefit is that it makes the building more sustainable. There’s a huge explosion of interest in sustainability. Most of the big green initiatives are for new construction. Managers are concerned about older buildings’ ability to compete,” he suggests. Harris says his company developed the program to “overcome the problem of first cost” to building owners and “get beyond the one roof at a time business model.” Neither owners nor tenants pay for the installation and operation, and Recurrent Energy profits from the sale of electricity the installation generates for the building.

While gaining “a green improvement to the building at no capital improvement investment, the service also provides owners with income from leasing the roof,” Harris notes. He calls the rental income “the icing on the cake. The biggest interest among owners is improvement to the building’s sustainability.”

The business model works best with contracts that encompass 10 to 20 buildings, “but we are primarily talking with owners of several hundred buildings.” The building model is low-rise, flat-roofed industrial and distribution facilities.

The original article can be found at:

http://www.globest.com/news/1183_1183/sanfrancisco/171926-1.html

http://www.recurrentenergy.com/

CAN IT BE GREEN TO RECYCLE BUILDING MATERIALS?

CAN IT BE GREEN TO RECYCLE BUILDING MATERIALS?

“People love to live in old buildings,” observes Susan Powers, president of the development company Urban Ventures. ”Community members generally love to see old buildings restored.”

Here’s a green building snafu - many current building codes aren’t formulated to accommodate the reuse of salvaged materials. As a matter of public policy, many progressive cities encourage the recycling of building materials, yet as a matter of administrative practice they make their use either economically impractical or illegal.

“In the case of windows, plumbing fixtures and lighting fixtures, energy-efficiency standards all but mandate the use of brand-new materials, since few salvaged materials can comply,” notes real estate columnist Arrol Gellner. “The majority of salvaged windows, for example, are single-glazed and don’t meet modern requirements for thermal efficiency or air infiltration — shortcomings that usually can’t be remedied without spending more than an old window is worth.”

Simple examples of the green building / historic rehab snafu:

Modern codes require safety glazing in all glass doors and in many windows. Yet the overwhelming majority of glass doors gleaned from architectural salvage, along with most of the windows, have plain glass, which cannot comply with these requirements. Calculate in the cost of re-glazing, say, a pair of old French doors with code-compliant glass would typically far outstrip their value. Factor in lead paint and asbestos issues. When it all comes down to it, it’s just easier to get them from your local home supply megastore.

Obviously old plumbing + electrical fixtures are out of the question. (Some antique models use as many as eight gallons per flush, as opposed to the currently mandated 1.6 gallons). Antique faucets on vintage sinks don’t have the flow restrictors mandated by modern energy codes. In many cities, newly installed lighting fixtures are required to carry an Underwriters Laboratories label — a standard that many old fixtures, even those rewired with modern components for safety, cannot meet.

In the current climate, achieving compliance in construction usually means replacing the old fixtures with more efficient ones.

Should green building ordinance makers need to look beyond the obvious, and make some allowances for certain types of recycled home materials?

Wade Killefer, a principal with Los Angeles-based Killefer Flammang Architects, has worked on many building rehab projects in downtown Los Angeles. He has identified several social and environmental benefits to historical rehab projects, including:

o Conservation of natural resources

o Repopulation of cities, which helps create sustainable communities

o Minimizing waste/keeping debris out of landfills

o Minimizing transportation costs for new materials

o Reduced heating and cooling loads in rehabs of old concrete and masonry buildings

o Increased cultural pride

o Shared resources/lower per-capita energy use

o Increased use of/demand for mass transit.

“One way to acknowledge the reuse of old materials as an alternate and equally valid way of saving energy would be for city building departments to grant ‘green credits’ to people using salvaged building materials,” observes Gellner. These could be used to offset certain code-compliance shortcomings, especially those dealing with energy efficiency.

Perhaps a simple approach may be to grandfather in various kinds of salvaged items, just as the noncompliant windows and lighting found in the vast majority of houses across the nation are deemed acceptable because they were legal when they were installed.

**

http://www.inman.com/buyers-sellers/columnists/arrolgellner/green-credits-would-help-recycling-efforts

http://www.inman.com/buyers-sellers/columnists/arrolgellner/double-standards-hamper-green-building

http://www.socalgreenrealestateblog.com/?p=126

GREEN YOUR BUILDINGS WITHOUT DEBT

GREEN YOUR BUILDINGS WITHOUT DEBT 

BOMA - The Building Owners and Managers Association International- has unveiled a standardized contract that allows building owners to reduce energy costs via retrofitting their buildings and at the same time finance those retrofits without placing additional debt on their buildings. The model contract, developed by BOMA in cooperation with the Clinton Climate Initiative, is an agreement between an energy service provider and a building owner in which the energy service provider guarantees to save the building owner a certain amount of money on energy costs each year by retrofitting a building. In return, the building owner agrees to pay the energy services provider out of the savings realized through the retrofit.

   The new BOMA-CCI model energy performance contract is designed to overcome those obstacles by providing a standardized contract that addresses all of the legal and technical issues involved in negotiating such a deal, and it also provides a blueprint for financing the contract via a lease between the building owner and the energy services provider. Henry Chamberlain, president and CEO of BOMA stated the association’s objective was to create “a turn-key program and a simplified contract” for building owners. Get all the details @ http://www.globest.com/news/1185_1185/denver/171797-1.html 

CURTIS SPENCER UNDERSTANDS INDUSTRIAL REAL ESTATE

CURTIS SPENCER UNDERSTANDS INDUSTRIAL REAL ESTATE

Curtis D. Spencer, president of Foreign Trade Zone and supply chain consultancy IMS Worldwide Inc. knows the need for industrial real estate. He understands a mounting necessity for major companies to assure “just-in-time” delivery of goods stemming from stepped-up port security, and this impacts industrial space demand. Spencer recently presented his opinions at the Los Angeles-based AIR Commercial Real Estate Assn. and to  GlobeSt.com. Here are some interview highlights.

How would you describe the current state of the industrial real estate market?

Spencer: We’ve had downward pressure on industrial demand based of the lack of consumer purchasing power. Yes, that’s happening, but there’s also an increase in wholesale inventory due to just-in-time concerns and the need to have more inventory on hand than was needed a year ago. So that’s a plus for industrial real estate. I think the two forces will counterbalance one another.

Why are industrial trends changing?

Spencer: In the late 80s, the concept of just-in-time delivery was perfected by automobile and computer manufacturers. The concept then expanded to the supply chain in consumer goods, and the model is now completely ingrained in the US wholesale psyche. But while that model is easy to manage if all your manufacturers and vendors are in the US, it’s more difficult as you go to Canada and Mexico and even more difficult when extended to 20 to 30 days out to places where the sophistication level is much less than in the US. Still, as complicated as it became once manufacturing shifted to Asia, it was manageable. Till 9/11.

How did 9/11 impact industrial real estate?

Spencer: New regulations by Customs & Border Security have put new strains on the supply chain, causing new delays and making delivery times less certain. And every time you get into a delay or uncertainty, you mess up that just-in-time philosophy. That’s only going to get worse due to new regulations to be imposed by the Department of Homeland Security. We’re seeing that manufacturers and importers are now looking to have more stock on hand to be able to maintain their just-in-time requirements. That means if they had 10 containers worth of goods on standby, it will now be 11 or 12. Repeat that enough times over and you’ve created demand for a lot more space. Manufacturers can’t afford to have a plant go down and retailers can’t afford to have shelves sit empty. So they’ve got to build in a margin of safety to compensate for delays due to security inspections.

Will there be more or less demand for industrial space in the near future?

Spencer: In 2007, we got very, very lean in this country because we were anticipating a reduction in consumer demand. So we let wholesale inventories get exceptionally low. The evidence that we’re hitting a turning point is that wholesale stock all over the US is growing even though retail inventories are not. On the manufacturing end, one manufacturer told me they’re going to add 20% more days in their safety stock. So if they had four million sf of storage across the US, now they’re going to need five million sf. This now has hit a zenith. A very serious note has occurred in this whole symphony called the supply chain.

Obviously this is a big benefit to the Southern California Industrial Market.

Spencer: It’s happening all over. It will affect every place where you’ve got industrial product. My feeling is it will be as much a positive for the market as the recession is a negative.

The original story can be found @

http://www.globest.com/news/1183_1183/hotseat/171775-1.html