Philip Blumberg Blog

NRG Texas Leases Most of Houston Pavilions Tower

NRG Texas and its retail business Reliant Energy have executed a long-term lease at Pavilions Tower in the Houston Pavilions complex, an agreement that includes the space in floors one through ten (Sheehy, Serpe & Ware occupy the top floor). Eric Anderson and Greg Tilton of Transwestern represented the owner, Houston Pavilions LP. NRG Texas was represented by George Strake and Christopher Oliver with Cushman & Wakefield of Texas, Inc.

With the completion of the NRG lease, the second largest lease to be completed within the last year in downtown Houston, the office section of the project is now completely leased. "Even in the best of economic times, it's not often that a 240,000-square-foot tenant comes along," said Geoff Jones, co-developer/principal of Houston Pavilions. "In today's climate, we feel extremely fortunate to have executed a lease of this size with a tenant like NRG."

For more news and information, visit Blumberg Capital Partners.

New LEED Standards with Performance Monitoring

The U.S. Green Building Council (USGBC) has launched LEED v3, the latest version of the USGBC's program for green building design, construction, operations and maintenance, which will be put into effect next week. All construction projects seeking certification under the Leadership in Energy and Environmental Design, or LEED, will have to adhere to these new standards.

As part of the program's improved oversight, USGBC will collect data from building owners to monitor the property's actual performance, and to help improve future versions of LEED. Under the new guidelines, building owners are required to submit annual data reporting both energy and water usage to qualify for recertification every two years. Scot Horst, senior vice president of LEED, said it "will bring to light external issues such as occupant behavior or unanticipated building usage patterns, all key factors that influence performance."

So what cities are at the fore of LEED development? The Miami Herald took a look at the top ten green U.S. cities this week, analyzing air and water quality, waste and recycling management, percentage of LEED-certified buildings, greenspace, renewable energy sources, and access to green lifestyle choices -- here are there top ten:

1. Portland, Oregon
2. San Francisco, California
3. Boston, Massachusetts
4. Oakland, California
5. Eugene, Oregon
6. Cambridge, Massachusetts
7. Berkeley, California
8. Seattle, Washington
9. Chicago, Illinois
10. Austin, Texas

For more news and information, visit Blumberg Capital Partners.

CPPI Reports Precipitous Drop in April

The Moody's/REAL Commercial Property Index (CPPI) results are in for April, showing a return of negative 8.6% for the all properties national index. The index now sits 25.3% below its level from this time last year, and 29.5% below the peak prices measured in October 2007. "Unlike other areas where people are comfortable that the pace of change is positive, in commercial real estate pricing the pace of change is negative," Neal Elkin, REAL president, told CPN. "January was one of the largest changes in pricing ever seen before, but in April prices are deteriorating faster."

The CPPI is a periodic same-property round-trip investment price change index of the U.S. commercial investment property market based on data from MIT Center for Real Estate industry partner Real Capital Analytics, Inc (RCA). Moody's observes that April's negative return partly reflects that most deals closed during this time were negotiated at the end of 2008 and beginning of 2009 when securities markets plunged. "Primary markets are outperforming compared to the others. If you look at the Southern region, industrial properties are down 28.8 percent," said Elkin. "When you look into the numbers you see a return to the premium of primary markets. Prices are falling much faster and farther in secondary and tertiary markets and you're seeing that in other property types."

For more news and information, visit Blumberg Capital Partners.

Minneapolis Office Space in Macy's Building for Lease

NAI Welsh are marketing office space for lease in the Macy's Building in Downtown Minneapolis, marking the first time in the building's 107-year history that space has ever been available for lease according to a Business Journal article. Located at 700 Nicollet Mall in the heart of downtown Minneapolis, the iconic building dates back to 1902 when Dayton's first opened and has since served as the headquarters and regional office of Dayton's, Marshall Fields, Target, and Macy's. The site was largely emptied last fall when Cincinnati-based Macy's cut about 1,000 jobs in Minnesota, leaving 350,000 square feet on floors six through 10 above the Macy's store now up for lease.

"This space is main-on-main as far as Minneapolis office space goes," said Jim Damiani, Senior Vice President, NAI Welsh. "You couldn't ask for a more prominent location in this market." Damiani said Macy's would prefer to lease the entire space to one or more large tenants, but it is willing to cut up the space to accommodate smaller ones.

For more news and information, visit Blumberg Capital Partners.

Sears Tower Getting Green Retrofit

The Sears Tower will be getting a $350 million retrofit, bringing the world's third tallest building to new heights of energy efficiency, exceeding its current LEED standing. The strategy, designed by Chicago-based Adrian Smith + Gordon Gill Architecture, will cut the building's electric consumption by 80% and water use by 40% according to a CoStar article. "The Sears Tower energy sustainability and environmental education project presents a tremendous opportunity for inspiring building owners and the public to aspire to the highest standards of energy-efficiency," said Charles Jackson, Illinois Environmental Council executive director.

Plans for the makeover include the addition of solar panels on the 90th floor roof to heat water, wind turbines that can be maneuvered to best capture the currents blowing through Chicago, a project to replace 16,000 tinted single-lane windows with energy efficient windows to create a "thermal break", revamping elevators to conserve energy and refitting bathrooms to reduce water use. More information on the sustainability plans for the building can be read here.

For more news and information, visit Blumberg Capital Partners.

Denver Office Tower Sells for $135M Cash

Downtown Denver’s Seventeenth Street Plaza office building has been sold to HRPT Properties Trust who paid $135 million in cash, making it the largest real-estate deal done in Denver this year according to the Denver Post. Newton, MA-based HRPT, a real estate investment trust that owns and operates office and industrial buildings, bought the 666,653-square foot, 33-story building from JPMorgan Chase of New York, a deal brokered by CBRE.

JPMorgan put the property on the market in early 2008, asking $385 per square foot, or roughly $250 million, brokers familiar with the property said. Brookfield Properties had the building under contract last summer for $225 million, but the deal was not finalized because of the debt crisis' impact on Brookfield's lender. Current tenants include the U.S. Department of Justice (with 208,250 square feet of space leased), the U.S. Department of Treasury, Ballard Spahr Andrews & Ingersoll and Molson Coors Brewing Company.

For more news and information, visit Blumberg Capital Partners.

Commercial Real Estate Report with Philip Blumberg on Reuters

Philip Blumberg sat down with Jeanne Yurman of Reuters on June 23rd for a Commercial Real Estate report. Blumberg Capital Partners says commercial real estate "will be another real stomach blow" to commercial banks where writedowns could be more than 50-percent.

Philip Blumberg, speaking at the 2009 Global Real Estate Summit in New York, says "it's no wonder why these commercial banks aren't lending." Separately, Blumberg says he expects to make some investments in the London property market where "they've taken writedowns and are closer to the bottom."

For more information, visit Blumberg Capital Partners.

Thoughts on Starwood's $500M IPO

Barry Sternlicht is starting a mortgage REIT in a time when credit is badly needed to restore market liquidity.
Financing mortgages was the original purpose of the REIT structure in the 1970's, until they got in trouble with a wave of too much lending with poorly underwritten loans and lax lending policies.

Sound familiar?
..... it should, as that's what happened again in the late 1980's when relaxed Savings & Loan regulation and policies promoted large scale over building leading to the worst commercial real estate market downturn until.......today, once again fueled by too much debt made possible by another "new" idea in capital flows to real estate: securitized debt in the form of RMBS/CMBS.

This new innovation in the debt markets, which provided high leverage at low rates, without recourse or risk to the borrowers, required other non-securitized loan providers, such as commercial banks, to be competitive and keep up or drop out, further rapidly expanding credit.
In fact over the last 5 years over $2 trillion in commercial real estate loans were made.
This fueled record and unsustainable pricing.

As the reaction to the overly abundant credit, initially in the sub-prime residential market, spread to other sectors, in the form of credit market contraction, a price/value decline was set off.
This drop in values further exacerbated the credit contraction, quickly becoming a hard credit freeze.

Lack of credit has also dried up capital for the purchase market, currently with transaction volumes at their lowest level in decades.
With the credit freeze comes the lowest level of new loan originations and a looming crisis in the debt markets for acquisition or refinance.
And an opportunity to selectively and prudently introduce new lending.

Historically, its almost always increased capital flows that induce the major crisis in real estate, not recessions.

And the re-establishment of prudent, patient capital flows that cures it.

When capital flows to real estate dramatically increase its often debt, abundant cheap debt, that starts the cycle.
With yields, or more accurately projected yields, "rising" as the positive effects of leverage are felt - equity starts to pour in.

A predictable cycle, that stops only when the effects of over-levered inflated investments are felt.

Those effects are usually in the form of too much capital fueling over building with eventually insufficient demand to keep up (eg the residential markets today),
or as we are now experiencing in commercial real estate, over levered, over priced acquisitions requiring debt and rental structures that are unsustainable.

Because real estate is a lagging re-actor (due primarily to the long time lag in development and the lease renewal lag in commercial assets) the supply/demand reaction is delayed, and the imbalance becomes dramatic.

So does the crash - typical of real estate.

These cyclical problems and solutions are very similar across time.
So in this environment we should again expect applications of old ideas or new twists on old structures.

Barry Sternlicht is a very bright and experienced innovator to real estate structures and I'd give respect to his mortgage REIT direction as one means of restoring capital flows to real estate.

Philip Blumberg on Reuters 6/22

Philip Blumberg appeared on Reuters Video today in a segment titled "Relief Still Elusive in Real Estate".

For more video and news visit Blumberg Capital Partners.

NAR Convenes CRE Coalition Meeting

Representatives from various commercial real estate and community organizations and associations met on Thursday, brought together by the National Association of Realtors, to work together to provide policymakers with a package of principles and policy priorities to help their efforts in addressing the current CRE credit market crisis. Bob Toothaker, chair of NAR's Realtor Commercial Alliance and host of the meeting, said, "We face a liquidity crisis, the likes of which most of us have not seen in our lifetime. There is not one silver bullet to fix the huge problem, but we believe there are key steps that can be and should be taken to ensure the continued health and vitality of the commercial real estate industry."

NAR believes the success of programs and initiatives aimed at restoring liquidity and stability to the markets is intrinsically tied to and must work in conjunction with supportive federal tax policies and accounting principles that support commercial real estate lending. According to NAR Chief Economist Lawrence Yun commercial real estate is the hardest hit industry outside of the auto industry. "A recovery in commercial real estate always lags a general economic recovery, but with the right policy prescriptions we can recover more quickly," said Yun. Organizations involved in the meeting included the Building Owners and Managers Association, CB Richard Ellis, CCIM Institute, Coldwell Banker Commercial, Colliers International, Commercial Mortgage Securities Association, Grubb & Ellis, Institute of Real Estate Management, International Council of Shopping Centers, Mortgage Bankers Association, NAI Global, NAIOP, TCN Worldwide, The Real Estate Roundtable, and Transwestern.

For more news and information, visit Blumberg Capital Partners.