Philip Blumberg Blog

Economic Diversity Drives Growth in Seattle

Economic diversity has fueled solid growth in Seattle office properties during the last year, and the effects of the housing downtown on Puget Sound businesses have been relatively moderate according to a second-quarter Seattle Office Research Report released by Marcus & Millichap. Expansion of the key high-tech and professional business services employment sectors has helped to offset losses in the construction and financial industries.

“Strong fundamentals and a positive economic outlook have driven investor demand during the last 12 months, as transactions have continued at a stable pace,” says Gregory Wendelken, regional manager of the Seattle office of Marcus & Millichap.

Following are some of the most significant aspects of the report:

  • Employers in the Seattle metro are forecast to add 19,000 positions in 2008, increasing payrolls by 1.1%
  • Developers are projected to deliver approximately 2.9 million square feet of mostly speculative
    office space in 2008, representing a 3.8 percent increase to existing inventory.
  • Vacancy is expected to end the year at 10%
  • Asking rents are forecast to increase 6.4 percent to $30.83 per square foot.
  • Effective rents will advance 6.2 percent to $27.79 per square foot.

For more real estate news and information, visit Blumberg Capital Partners.

Investment Market Prospects

Anthony Graziano, associate managing director of Integra Realty Resources, wrote an article recently for CIRE Magazine titled "Making Sense of the Market: Investors who know where to look can find opportunities." In it, Graziano reviews the current market and how experts and investors alike are feeling about this year's commercial real estate prospects. A survey of industry experts and analysts point to four current trends that are affecting lenders, investors, brokers, and owners in the commercial sector: general economic malaise, investors’ wait-and-see attitude, lack of available capital, and buyer-seller price disconnect.

"The current climate does not point to long-term fundamental value declines because the analysis of supply and demand indicates balance in most markets and sectors," observes Graziano. "So the situation represents good investment opportunities in 2008 and 2009 for those investors who aren’t waiting for the pack to tell them where to look." The article presents a list of investment market prospects ranked by strength and location:

Investment Market Prospects

National markets with positive demand generators	Boston: Strong convention and office market Dallas-Fort Worth: Barnett Shale gas field generating strong economy Denver: Past employment declines have reset expectations Houston: Energy and Port Houston drive activity Indianapolis: Buys against replacement cost very favorable Miami: Condo bust masking international in-migration that drives demand Richmond, Va./Charlotte, NC: Banking gets profitable again
Strong regional markets	Austin, TX: Nonstop job growth Cleveland: Negative population growth masking good opportunities Milwaukee: Healthcare activity Minneapolis-St. Paul: Fortune 500 haven, highly educated workforce Savannah, GA: Port city and tourism drive activity Seattle: Strong job growth in technology and airline industries
Long-term prospects	Detroit: Opportunities exist at 50 percent of replacement cost Boise, ID: Poised for rebound Portland, OR: Land constrained and underpriced Columbus, OH: Ignored by institutional investors Memphis, TN: Historically slow growth, under recognized Tulsa, Okla.: Energy suburb of Texas
Wait until 2009–10	Phoenix New York Northern New Jersey Los Angeles Tampa, Fla. Baltimore Philadelphia

For more real estate news and information, visit Blumberg Capital Partners.

Another Las Vegas Project Stalls, Loan Payment Deferred

Commercial real estate development firm Elad Group, which owns New York's Plaza Hotel, has postponed the development of a $5 billion multi-use complex on the Las Vegas Strip according to a Wall Street Journal article. The $5 billion Las Vegas Plaza casino-hotel development, a complex design based on the New York Plaza, was scheduled to break ground by the end of 2008 on the site of the former New Frontier casino. The project's groundbreaking has been moved to "sometime in 2009," said Michelle Tsang, spokeswoman for Elad IDB Las Vegas LLC, a partnership between the Elad Group and IDB Group of Israel.

The Plaza partners also have deferred payment of a $625 million loan used to buy the project site, Ms. Tsang said. Payment of the loan from Goldman Sachs Group and Credit Suisse Group has been deferred until May 2009. Elad IDB paid a premium price of $1.25 billion for 35 acres at the height of a land-buying frenzy on the Las Vegas Strip last year. The decision comes as a slumping U.S. economy and much tighter credit markets have caused other developers to reassess the need for more hotel capacity in the gambling corridor.

The Plaza Hotel was closed in 2005 to create a mixed-use property consisting of condominiums, retail space and some hotel rooms. The Las Vegas Plaza, when completed, will contain a luxury hotel, private residences and restaurants, as well as retail, convention and gaming space. The complex will be directly across from the Wynn Las Vegas and the Anchor, Wynn Resorts Ltd.'s newest property. Final plans for the Plaza were approved by county officials in Nevada in March; construction is expected to take three years.

For more real estate news and information, visit Blumberg Capital Partners.

Blumberg Capital Partners Video

Opportunity to profit in commercial real estate.  Watch the video below to view an interview with Philip Blumberg of Blumberg Capital Partners discussing the current economy prospects and where there may be room to profit in the coming year.  For more real estate news and information, visit www.blumbergcapitalpartners.com

New Survey Shows CRE Market Conditions Weakening

Real-estate executives' outlook for the commercial-real-estate market has deteriorated as hopes dim for improvement during the next year, according to a Real Estate Roundtable survey conducted during the third week of July. In the survey, respondents confirmed that problems in US financial markets and the broad economic downturn are having a negative effect on income-producing real estate — encompassing office buildings, shopping malls, warehouses, hotels, and apartment buildings. The survey captures the perspectives of over 100 senior real estate executives, including CEOs, presidents, board members, and other executives from a broad set of industry sectors including owners and asset managers, financial services firms and operators.

84 percent said credit availability is “much worse” than it was one year ago. Equity financing conditions are worse as well, but not to the extent seen on the debt side (51 percent characterized equity financing as “somewhat worse” than one year ago; only 23 percent said conditions are “much worse”). Changes in expectations for the coming year have declined since April ’08 by 10 percent for general real estate and by 6 percent for capital markets. Almost no respondent expects a significant improvement for the next 12 months. More than half of those polled expect “somewhat better” conditions in the overall real estate market (42 percent). Only 13 percent anticipate “somewhat higher” asset values in overall real estate markets in the 3rd quarter of 2009, while 44 percent expect real estate asset values to be “somewhat lower.”

"Even though loan delinquencies to the sector are very low, the ongoing lack of credit for real estate has led to weaker property values and has stalled transactions," Roundtable President and CEO Jeffrey D. DeBoer said in a Wall Street Journal article. "Lawmakers should be especially cautious as they consider ways to address the credit crisis, broader liquidity and risk pricing issues, and perceived inequities in the tax code. Likewise, proposals that paint all real estate lending with one broad brush could inadvertently become a self-fulfilling prophecy and must be rejected."

For more real estate news and information, visit Blumberg Capital Partners.

Boston Properties Purchases 2 NYC Buildings for $705M

Boston Properties has completed the acquisition of 540 Madison Avenue and Two Grand Central Tower in New York City from affiliates of Macklowe Properties for an aggregate purchase price of approximately $705 million, including $309.9 million of assumed indebtedness according to a CPN article. Each acquisition was completed through a joint venture among Boston Properties, US Real Estate Opportunities I, L.P., which is a partnership managed by Goldman Sachs, and Meraas Capital LLC, a Dubai-based private equity firm. Boston Properties has a 60% interest in each venture and will provide customary property management and leasing services for the venture. Boston Properties expects to account for its investment in each joint venture under the equity method of accounting rather than on a consolidated basis.

The debt that was assumed as part of the transactions consists of the following:

540 Madison Avenue

— two secured loans having an aggregate principal amount of $119.9 million and a weighted-average fixed interest rate of 5.20% per annum, each of which matures in July 2013

Two Grand Central Tower

— a $190 million secured loan having a fixed per annum interest rate of 5.10%, which matures in July 2010.

540 Madison Avenue is a 39-story building located at Madison Avenue at 55th Street that contains approximately 292,000 rentable square feet. Two Grand Central Tower is a 44-story mid-block tower that runs from 44th to 45th Street between Lexington and Third Avenue and contains approximately 664,000 rentable square feet.

The deal is part of the continuing fallout of the credit crunch. Macklowe Properties, which borrowed heavily prior to the subprime meltdown to finance billions in acquisitions of office buildings that formerly belonged to Equity Office Properties Trust, was caught post-meltdown with no viable options when it came to refinancing the debt.

For more real estate news and information, visit Blumberg Capital Parnters.

Financial Problems Suspend $4.8 Billion Las Vegas Project

The Las Vegas community, under the weight of a steady decline in gambling revenue this year and depressed hotel rates as visitors feel the pinch of rising travel costs, has suffered another setback. Boyd Gaming Corp. has announced that financing promblems have prompted it to suspend construction of their $4.8 billion resort complex on the Las Vegas Strip. The project, called Echelon, was due to open in 2010 with nearly 5,000 hotel rooms, five hotels, two live entertainment theaters, and a shopping district.

The project could be delayed for a year, or as long as it takes for credit markets to reopen, said Boyd Chief Executive Keith Smith in a Wall Street Journal article. "The decision to delay is not a reflection of the merits of this project," Mr. Smith said during the company's regularly scheduled earnings call Friday, but rather of the economic challenges facing the entire industry. Mr. Smith said Boyd is still committed to completing the project. Boyd stock shot up 20% to $12.01 Friday in New York Stock Exchange composite trading and many analysts praised the move. The suspension "should significantly decrease Boyd's risk profile in the near term," Oppenheimer gambling analyst David Katz wrote in an investor note.

Echelon, which broke ground last year on the former site of the legendary Stardust hotel, was Boyd's ambitious bid to move onto the tourist-oriented Strip, but now stands silently in wait as construction is suspended (as seen in the live video cam). While there is concern regarding the security of the site and preventing theft of materials, others are worried about the project's visual impact. "A bigger concern of mine as a southern Nevadan is the eyesore, especially on the multibillion dollar Las Vegas Boulevard," said Steve Ross, secretary and treasurer of the Southern Nevada Building and Construction Trades Council. "I understand the business logic behind why Boyd is doing this and what's happening on Wall Street, and I imagine this occurs quite frequently around the country, but not here. It's an unprecedented event on Las Vegas Boulevard."

For more real estate news and information, visit Blumberg Capital Partners.

AC Transit Purchases Fruitvale industrial Site for $19M

Alameda Contra Costa (AC) Transit has purchased the Fruitvale Business Center in Oakland, California from Kavped Inc. for $19 million. The 16-acre industrial center is adjacent to its current bus maintenance facility and has 240,657 square feet spread across four buildings and six undeveloped acres on its property. The center had been in escrow with a home builder earlier this year, but the deal fell through.

AC Transit plans to use the undeveloped land for future expansion, said Jim Morris, who helped complete the deal while at Colliers International (representing the seller in the transaction) but later moved to Cushman & Wakefield of Northern California. The timing of the expansion has not yet been determined as current tenants, including a roofing company and a landscaping business, have leased nearly 100 percent of the existing buildings and will remain in place for at least five years.

"This deal demonstrates there is still strong demand for industrial property in Oakland," said Colliers Vice President Gabe Burke in an article published by East Bay Business Times. Because industrial space is scarce in the inner East Bay, when a property like this comes available next to a company's existing site, "you take a hard look at it," Morris said.

For more real estate news and information, visit Blumberg Capital Partners.

Blumberg Capital Partners Video

The early innings of a subprime market and credit crunch -- and how it's effecting commercial real estate.  Watch the video below to view an interview with Philip Blumberg of Blumberg Capital Partners discussing the subprime market and the resulting credit crunch's first-wave of impact on the commercial real estate market.  For more real estate news and information, visit www.blumbergcapitalpartners.com

Newcastle-RREEF JV Acquires Former Boeing Land for $350M Project

A joint venture between Newcastle Partners Inc. and RREEF Alternative acquired 54.5 acres at the former Boeing aircraft manufacturing site in Long Beach, California. The property is part of the partnership's plan to a 4 million-square-foot mixed-use business park with an estimated value of $350 million. The project, named Douglas Park, will consist of 261 acres upon completion. The first two phases of development will be on the 54.5 acres recently acquired.

The Boeing site is the largest piece of developable land in Long Beach. Plans for the project include 4 million square feet of office, industrial, retail and hotel space, plus 10 acres of parks. "Nothing of this type has been constructed for more than 10 years in this area," Dennis Higgs, president & CEO of Newcastle, told CPN. "We are doing it in three or four separate phases with the first phase already under construction. It will have 242,000 square feet of industrial, which is still in strong demand. There will also be 175,000 square feet of office, so the first phase is not all that large relative to the size of the market."

There is potential for build-to-suit projects, allowing ownership within Douglas Park. Construction on the Phase I office site began in June with completion anticipated in May 2009. Construction on the industrial portion is scheduled to begin before the end of summer. The Class A buildings will be Leadership in Energy & Environmental Design (LEED) Certified.

For more real estate news and information, visit Blumberg Capital Partners.