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August 27, 2010

Zombies

We've just landed Defense Information Systems Agency CIO Henry Sienkiewicz for our Military Technology Summit Sept. 16 in Tysons Corner. See below for more upcoming events in your city or check out Events page.

We know vampires are the in thing now, but we feel bad for the under-appreciated zombies, so we picked the brain of Cushman & Wakefield Sonnenblick Goldman NYC EVP Douglas Hercher. Our DFW reporter Tonie Auer learned that some properties that appeared to be out of money—qualifying them as zombies—are beginning to gain some value above their debt.

Prime example: The Dallas HFF office arranged $1.8M in financing for the acquisition of 27 units at Liberty Lofts, a fractured condo development in Kansas City. Atlas Properties took the five-year construction, mini-perm loan to acquire the vacant units and complete the remaining construction to reposition them as rental units. In 2009, banks, with much bigger problems, put many assets that needed capital and expertise on the backburner. Doug tells us now many lenders are concluding the best way to max value is to work with the borrower rather than foreclose, particularly where specialized leasing or construction experience is involved. Nearly complete projects may now get done, as well as renovations. “Among the special servicers, we are starting to see more foreclosures and less extension flexibility for properties that are deeply out of the money,” he says. Many zombie properties weren’t fundamentally flawed—just overleveraged and under-managed, and Cushman is seeing investors flock to those assets as they’re put on the market.

THIS CHART IS SHAPED LIKE THE ROCKIES, BUT INDUSTRIAL VOLUME IS STEADY

Although industrial sales volume has generally trended upward since the beginning of the year, it remains hampered by a lack of available product for sale, according to CoStar economists. Industrial fundamentals have been impacted by the poor economy like other CRE markets, but construction shut down sooner and industrial loan delinquencies remain the lowest of the major property types. In fact, the industrial sales market has only breached $1B in a single month once in the past 19 months, as few non-distressed owners are willing to sell at rock bottom. Pricing appears to be firming. The CoStar Commercial Repeat-Sales Index, which analyzes price changes for properties that have sold more than once, confirms that industrial prices only declined 1% in Q2 compared with an average quarterly decline of 5.4% over the prior five quarters.

YOUNG GUNS COME TO ATLANTA

Avison Young's new hire: Steve Dils

We got a chance to snap Steve Dils, who’s taking the field for a Toronto-based brokerage firm (couldn’t help using a football reference for this former NFL QB). Avison Young tapped Steve (who previously headed Grubb & Ellis in Atlanta) to lead its Atlanta office, located at One Alliance Center in tony Buckhead, entering the market during one of its the worst real estate recessions ever. Avison Young is Canada’s largest independently-owned CRE brokerage firms, but has a handful of US locations, including Houston, Chicago, and DC. As Steve puts it, right now is the best time to start a new brokerage in Atlanta. “I think you can build great companies in difficult times.” So far, he’s building quite a team with industry vets Chet Koenig, Matt Tritschler, Chip Watson and Brent Weitnauer. With Avison Young’s recent purchase of Hodges Management and Leasing, the firm now manages and leases nearly 20M SF of space throughout the Southeast. As for the recession? "We are past the halfway point in my opinion,” he says. “When it does turn, we'll recover faster than a lot of people are predicting right now."

GOING...GOING...GONE

Chartwell VP Bud Blinick at the Grand Plaza condos

The Chartwell Group is the largest independent brokerage in Cleveland, but this week the company will be auctioning dozens of properties across the country. Our Chicago reporter Maureen Wilkey caught up with Chartwell VP Bud Blinick at the Grand Plaza condos, 10 of which were on the block Thursday night. Bud tells us he’s been in the auction business off and on since the early ‘80s and says auctions are still the quickest way to move property at a market rate agreed upon by buyer and seller. Many investors are seeing commercial auctions as a good opportunity, but Bud warns they should pay close attention to occupancies.

The 10 units at Grand Plaza range from 1,230 SF to 2,500 SF and were auctioned with minimum bids of $345k to $775k, up to 53% off the original price. Units in the building are frequently used by Hollywood and sports stars in Chicago for weeks or months at a time—one is currently being occupied by an executive for Transformers 3. (If Optimus Prime can fit inside these units, you know they're sturdy.) The condos were converted in 2005 and the developer thought the cost to carry the units and have a sales center seemed too much for so few. Bud says Chartwell’s auction group holds 20-50 auctions per year, but this August has been particularly busy. Other recent and upcoming auctions have included condos in Seabrook, Texas and Phoenix, hotels in South Carolina and Ohio, and an estate in Rock Island, Ill.

BACK TO SCHOOL SCHMOOZING

When we get back from vacation Sept. 7, we’ll look forward to seeing you at one or more of our super Schmooze events coming up, including:

Bisnow CEO Series feat. National Geographic and NPR CEOs John Fahey and Vivian Schiller. Renaissance Dupont Circle. Sept. 10.

NYC Real Estate Summit. The Cooper Union Great Hall. Sept. 15.

Military Technology Summit. Ritz-Carlton Tysons Corner. Sept. 16.

Chicago Real Estate Summit. Mid-America Club. Sept. 21.

DC September Schmoozarama. Cuba Libre. Sept. 22.

Dallas Multi-Family Summit. Meyerson Symphny Center. Sept. 24.

The Future of the Energy Corridor. Houston. Sept. 28.

Atlanta Multifamily Summit. Loews Hotel-Midtown. Sept. 29.

BRAC & Cyber & Oh My! NSA Montgomery College Performing Arts Center. Sept. 27.

Boston State of the Market. Renaissance Boston Waterfront. Sept. 30.

Q&A with CBRE’s Dave Pogue

You know commercial real estate’s green building mantra: cost savings, tenant draw, good corporate citizenship. But as sustainable building markets mature, a new addition might be achieving a premium on sales as assets begin to trade hands again. That’s what CBRE national director of sustainability Dave Pogue told our national real estate editor Sibley Fleming yesterday from his firm’s Midtown Manhattan office, where he was visiting from his home base in San Jose, Calif. Dave tells us he’s got a fall vacation planned—he and his wife are headed for Greece in October.

Bisnow: How big is CBRE’s managed sustainable portfolio?

Dave: We now are managing 110 LEED EB buildings [CBRE hit the 100 building mark in July]. Less than three years ago, there were fewer than 60 LEED EB buildings in the world. Today, we have almost doubled that in our own management portfolio. So there’s been a significant adoption of the LEED standard. We literally get new assignments every week to expand that portfolio. We also have 240 buildings that are Energy Star labeled. It is highly likely that all of the 110 LEED buildings are also Energy Star labeled.

Bisnow: What types of clients are more likely to go for LEED?

Dave: Most of the buildings that are pursuing and getting LEED certification are the high-profile buildings, larger buildings in urban environments. So those owners are typically larger pension fund advisers or large institutional owners who have a large portfolio of properties in multiple markets.

Bisnow: What services are they requesting?

Dave: There’s still a capital-constrained market, so we continue to be asked to do a lot of this really without a lot of capital. Essentially we’re trying to do what I call ‘the right things right’ and make sure the buildings are running as well as they can up to their design specs. Part of that is engagement with the tenants and getting them to cooperate on programs that we’re putting in place.

Bisnow: What’s next?

Dave: There’s a growing body of academic work around the economics of these green buildings, separate from cost reduction, looking at rental rate and occupancy achievement, and particularly as the market matures and there are opportunities for sale, there’s an indication at least that these buildings will trade for a higher value. I spoke with an academic Nils Kok [working now on a one-year program at UC Berkeley, visiting from Maastriccht University in the Netherlands] just last week and he is publishing a paper called “The Economics of Green Building”. He’d done previous work in the ’80-’09 time-frame and determined there was a modest but clear rental-rate benefit and occupancy benefit. They’ve now redone their study. One of the things they wanted to know was how green buildings had fared in the recession. They again found a discernible improvement in rental rate achievement and occupancy. Now, they’ve also determined that LEED buildings, particularly LEED Silver and LEED Gold, were selling at a premium of more than 10%.

Bisnow: How is your green in-house training going?

Dave: We’re approaching 500 LEED APs internally. We’re also continuing to offer BOMA BEEP training and now up to almost 9,000 attendees in the four-course sessions. We’re trying to train our broad audience of engineers and managers in the basics of energy conservation. Then we offer the more intensive LEED AP accreditation.

SEE YOU AFTER LABOR DAY

You wear us out. That's a good thing. It means everyone is finding ways to traverse a difficult economy. But our feet need a rest, so we'll be on break next week. If possible, stick your breaking news in your back pocket until after the holiday. But if it can't wait, contact sibley@bisnow.com.

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