INDUSTRIAL SECTOR BOUNCING BACK

by:  Bruce Kaplan

The umbrella catch phrase “commercial real estate” encompasses office, retail, multi-family and industrial product types. All have been hurting for the better part of three years even though the Federal government officially announced the end of the recession in June of 2009. One of the brightest of the commercial property types is the INDUSTRIAL sector which is showing signs of as resurgence. An April, 2011 article in Benuzzi’s Industrial Guide by Elise Couston of Paine Wetzel reported comments from three Chicago based experts who sounded very upbeat based on what they see and experience. Sales and leasing activity is trending upward, vacancy rates are dropping, net absorption has turned positive…all indicative of DEMAND in the market. Investment sales in the first quarter of 2011 tripled compared to Q12010. Although we are slow to see these trends in McHenry County, we have noticed an increase in showing activity which is commonly a pre-cursor to increased sales and leasing activity

Reasons cited for the resurgence of the industrial sector are several: 1) PENT UP DEMAND-may companies have been parking their profits due to the uncertainties in the economy and sitting on the sidelines waiting for the right moment to make their next move. Businesses by nature can’t stand still; they need to grow. Eventually they need to DO something that propels them forward. More and more companies are reaching a conclusion that they can’t keep sitting on the fence. 2) SUPPLY CHAIN EFFICIENCIES- many companies have taken the position that they need to get “lean and mean” from top to bottom as a survival strategy. Sometimes the process of becoming more efficient leads to an EXPANSION, sometimes a RE-LOCATION (getting closer to customers or suppliers; other times a CONSOLIDATION or even a CONTRACTION. Certainly there are many companies who have done absolutely nothing to trigger a need for larger or smaller manufacturing or warehousing facilities, but many have been forced to buy or lease other space because of this quest for supply chain efficiencies. We in the business call that a (“cha ching”) transaction and it’s what we live for.

Easier Credit, Agreeable Sellers Drive Up Property Sales

August 23, 2010

Easier credit, agreeable sellers drive up property sales
By: Eddie Baeb

(Crain's) — Commercial property sales are back in vogue in 2010.

Through the first half of the year, sales of Chicago-area office buildings, shopping centers and industrial properties were up compared with the same period last year, according to data from research firm Real Capital Analytics Inc.

The biggest increase came in the retail sector, where 17 local malls and strip centers were sold for $177 million, a robust 329% increase from the dollar volume in the first half of 2009.

The other big gainer was the suburban office market, where 13 properties fetched $228 million, a 230% increase in volume from the year-earlier period, data from the New York-based Real Capital shows.

The return of activity can be attributed to the credit market, as loans have become easier to come by, and to sellers more willing to pull the trigger than they were a year ago. The economy seeming to have bottomed out also has helped.

“There was a lot more uncertainty last year; that made transacting much more difficult,” says Ryan Stoller, a Chicago-based regional asset manager with KTR Capital Partners, a New York investment firm looking to buy industrial properties here. “I think now we've reached relative stability in terms of not only cap rates but market rents. Rents have stabilized, so it's a little easier to peg values.”

One Government Program That Works!

February 9, 2011

If you are thinking of purchasing or refinancing a commercial property in the near future, you must familiarize yourself with a great financing option offered through the U.S. Small Business Administration (SBA). There are two main programs available through the SBA: 1.The SBA 504 Program and 2: The SBA 7a Program. These types of financing have been around a long time but in this depressed economy, it is the savior of many a commercial/industrial real estate deals.

To give you some perspective on how this program has gained in popularity, in fiscal year 2010, SBA supported more than $22 billion (54,833 loans) in lending to small businesses through its two largest loan programs, compared to more than $17 billion (47,897 loans) in fiscal year 2009. The average weekly loan volume for fiscal year 2010 was $333 million, which was a 29 percent increase over the average weekly loan volume of $258 million for fiscal year 2009.

The SBA funds a portion of the project or guarantees a percentage of the loan depending on which program is chosen, but in general the SBA takes away a lot of the risk for the commercial bank in the event the loan goes bad. Whereas a commercial lender may not be willing to make a conventional loan (where the bank typically absorbs 100% of the risk) that same lender will often be a willing participant with the government absorbing a percentage of it.

Fundraiser For Ailing Realtor

October 14, 2010 1:43 PM

A couple of months ago, a fellow Realtor from Woodstock, R.B. McCallister, became stricken with acute transverse myelitis, which is a debilitating inflamation of the spinal cord. Groups of McCalister's friends have come up with some creative ways to help raise money to pay for his hospital and rehab expenses. R.B.'s 2009 Harley Davidson is being raffled with 3,000 $10 tickets to be sold. There is also a Bar Crawl on the Square scheduled for Nov. 6 and an art sale on Dec. 4. For details contact Harding Real Estate 815-338-3850 or just send a contribution of any amount you can afford to:

R.B. Benefit Trust, c/o Harding Real Estate, 1710 S. Eastwood, Woodstock, IL 60098.

Office Vacancy Improves- Industrial Vacancies Dip

October 12, 2010 11:02 AM

Office Vacancy Rate Improves While Industrial Vacancies Dip
Crains reported this month a positive improvement in suburban office vacancies which ended a string of 13 straight quarters of increases. The third quarter rate came in at 25.2% meaning one out of every 4 sq. ft. of office space is empty. This is great for prospective tenants who can just about write their own ticket in lease or lease renewal negotiations. Some experts predict this tenant advantage will continue thru 2011 before moving back the landlord’s way. Job growth or lack thereof is the stimulus that will boost the vacancy meter further in the right direction.
Crains also reported a slight surge or uptick in industrial vacancy rates in the third quarter after reporting a slight dip in the second quarter. 12% of all factory and warehouse space is vacant vs. 11.9% in the second quarter. This represents 3,000,000 sq. ft. of negative absorption. The vacancy rate is approximately half that of the office vacancy rate and gives you an idea of which property type has been hurt the most by this recession which is now going on 3 years.

To read the full articles click on the links below:

Suburban office vacancy improves for first time since 2007

Improvement short-lived for local industrial market

Did I Miss the Memo?

September 27, 2010 11:41 AM

The news last week from the National Bureau of Economic Research (known as the official referee of the economy) was that the recession ended 15 months ago in June, 2009. I was so relieved to hear this news that I called all my friends, clients, fellow commercial real estate brokers to make sure they knew about this. Then I called all my banker connections to tell them it was ok to start loaning money again. After that, I called every business owner I know and told them it was ok to start hiring again. After the laughter died down I wondered to myself whether I had mis-read the report. Then I remembered something about government propaganda and an upcoming election cycle with Obama’s Chief Economic Advisor (Larry Summers) bailing this week along with the announcement that his Chief of Staff Rehm Emanual escaping to run for Chicago Mayor, this administration may be about to see the wheels fall off. Lies and propaganda are a last ditch effort to save themselves. I usually don’t believe everything I read but I don’t believe ANYTHING coming out of the White House these days. How about you?

I Should Have Known This!

September 8, 2010 1:59 PM

The old saying “you learn something new every day” was certainly true on September 3 for me. I have been under the mistaken assumption that the Illinois Responsible Property Transfer Act (IRPTA) was still the law of the land in Illinois. This 1989 law invented a whole new industry of environmental consultants and cumbersome requirements that required the delivery and recordation of statutorily prescribed forms disclosing the presence of underground storage tanks or storage of certain hazardous materials. But the law was repealed 9 years ago. Illinois statues no longer require disclosure and recordation. Now, any such disclosures are merely among the many matters to be negotiated between sellers, buyers and lenders. Phase I and Phase II Environmental Reports have become such a natural extension of what commercial brokers have to deal with on virtually every sale transaction, I figured IRPTA was still the driving force. Live and learn! Thanks to attorney Bob Gorecki for telling me.

Hidden Taxes on Businesses

August 19, 2010 2:51 PM

We have noticed that many (not all) communities are now charging fees to new businesses for obtaining occupancy permits and for business registrations or licenses. The trend is troubling because these fees are all in to just another tax on businesses. There are enough "barriers to entry" for businesses to start up operations without these manatory fees. We are developing a spreadsheet of the communities in which we do business and what their fees are for occupancy permits and business licenses. Let us know if you'd like a copy.

Apartment Investors Fare Well

August 11, 2010 1:58 PM

The Chicagoland suburban apartment market appears to be alive and well if you believe an article on the August 9 ChicagoRealEstateDaily.com by Alby Gallan. He cited a study by Appraisal Research that claims median net rents rose in 7 out of 10 submarkets in the second quarter. Occupancy rates also climbed to 93% in Q2, heading back toward the 97.1% peak in 2006. Even though the local unemployment rate is 10.6% (June) and the country lost 131,000 jobs in July (U.S. Labor Department), the local job market has apparently stabilized enough so that people who had moved in with parents due to uncertainty are starting to venture back out on their own. Unfortunately, McHenry County was one of the “Loser” submarkets studied with a 3.2% decline in median net rents from 1 year ago. That’s the price we pay for living in “the sticks.” By the way, that’s good if you’re the one renting, not so good if you are the landlord.

Positive Winds of Change

August 9, 2010 2:11 PM

The summer 2010 issue of Commercial Connections contained an article called “The Winds of Change.” In it, was a graphic showing Commercial Real Estate Transaction Closings per week since 2007. Here’s what it said:

2007                  512
2008                  262
2009                  127
2010                  124

* Source: Real Capital Analytics, Inc.

Our business has been trashed in 3 years. The NAR Chief Economist, Lawrence Yun talked about how “brutal” the last 3 years have been for commercial real estate practitioners. He said “commercial real estate investment sales collapsed by 90% from peak just a few years ago.” He also said that the MIT Center for Real Estate alleges that average property values have tumbled by 58%. The tenor of the publication, however, was that positive things are starting to happen.
Check out the 2010 1st quarter CAP and vacancy rates compiled by the NAR Research Division:
2010 Q1 Cap Rates 2010 Q1 Vacancy Rates
Office             9.1%       21.2%
Industrial        9.0%       18.8%
Retail              8.9%        20.8%
Multi-family     8.6%       12.1%
Hotel              10.3%      26.0%
Development 11.7%      38.6%

Some Rare Positive News

August 4, 2010 1:47 PM

The Daily Herald Business Section on August 3 reported that the Manufacturing sector of our U.S. economy has experienced 12 consecutive months of positive growth. The so-called Purchasing Manager's Index surveys about 400 Production Managers around the U.S. and readings over 50 are deemed positive growth or expansion. From July '09 to July '10, the readings were 50 or higher. Since manufacturing accounts for about one fifth of U.S. economic activity, it can't carry us out of the recession by itself. But with hiring managers reporting intentions to resume hiring, job creation in the Manufacturing sector has begun and will be increasing. Jobs, we have been saying for months, is what it will take to drag us out of this recession. Private sector jobs. So do you see why this is a ray of sunshine? People get hired; they fill up empty space in industrial buildings. I don’t know about you, but this negative absorption is getting old. Closer to home, we just read in the NW Herald today that Precision Twist in Crystal Lake will lay off 169 of its 263 employees and will close its manufacturing operations over the next 5 months.

You Tube Videos Experiment Now Working

July 27, 2010 10:55 AM

The Power Team added one more tool to the toolbox last week and created our first 3 You Tube videos. Check out the links below. Our next step is to improve quality and add voice. Any input (constructive only) will be appreciated.

Good News About Retail Vacancy

July 23, 2010 12:28 AM

A July 19 Crains article by Thomas Corfman heralded the news that the retail vacancy rate dropped for the first time in three years in the second quarter of 2010. The amount of vacant space in shopping centers and strip malls dropped to 11.9% from a 12.1% rate the first quarter. To keep things in perspective, 3 years ago, the rate was 7.51%. Retail rents are also edging upward. In the last month, Crains has reported vacancy rate decreases for the office and industrial sectors also. Could it be that we are rounding a corner? Don’t break out the champagne just yet. We’re monitoring this closely and will continue to bring you updates as we see them.

What If Realtors Went On Strike?

July 21, 2010 11:15 AM

Watching the lack of progress on the Virginia Road repaving project (due to the truckers strike, which may actually be over), I found myself daydreaming about the prospect of all real estate agents forming a union and staging a nationwide strike, for higher commissions, of course. Just think of it each and every licensee walking a picket line or sitting on lawn chairs like the truckers union does. The image sends chills down my spine! In my reverie I contemplated taking an extra 10% or so from the greedy brokers that we work for, making them grovel and sweat, taking the already meager profit margins right away from them. Maybe we could also force the “man” to provide benefits such as health insurance or even pensions. I was really getting into this euphoric daydream when like a bucket of ice water thrown in my face, I woke up, came to my senses as it were. None of us Realtors are employees; we’re independent contractors. We have no union. We can’t strike. Even if I could strike, I wouldn’t make any money during the strike. I’m already not making any money due to the economy, so why bother? Some real estate offices are a lot like the truckers and the concrete workers recently on strike. You’ll have 3 or 4 real estate agents in the office sitting around eating donuts and drinking coffee instead of making calls. You’ve seen a similar scene in the construction zones, I’m sure.
The federal government hands these jamokes a gift with our tax dollars (or is it money they just printed?), gives them legitimate work to do (although I still question them re-paving a perfectly good road like Virginia Road as “legitimate”) and like a bunch of complete INGRATES, they go on strike for three weeks during prime construction season! Inconveniencing everyone who drives anywhere; they don’t care. It’s all about the greed. I’ve watched teacher’s strikes, garbage workers strikes, airline personnel strikes. It’s all a power play, the unions muscling the owners. The usual service recipients are of necessity inconvenienced. I guess that’s where the leverage of a work stoppage comes in. I liked it when the air traffic controllers union was busted. Did my heart good. Who did they think they were, crippling air line travel, one of our basic rights? May all the unions suffer the same fate! When the unions get what they want (more of this, more of that) somebody pays. And that someone is always US. They win, we lose. I say get your butts back to work, be satisfied that you have a job while so many others can’t find work. Stop being pigs and actually do a days work for a days pay. Be happy you’re not on a straight commission like us real estate agents!

Industrial Vacancy Falls

July 13, 2010 11:33 AM 

A July 12 article in chicagorealestatedaily.com (powered by Crains Chicago Business) reported a trend-breaking drop in the industrial vacancy rate from 12.3% to 11.9% in the second quarter. You gotta love it when a 10 quarter trend is disrupted for the first time in 2 years. Colliers International who tracks 21 submarkets in Chicagoland is giving us something positive to talk about in the industrial real estate market. They also reported a positive result in "net absorption" which turned positive after nine straight quarters in the negative numbers. Net absorption measures the change in the amount of leased and occupied space compared with the prior period. A negative 32 million square feet of negative absorption took place in the 9 quarter period prior to the 2nd quarter. 2.1 million square feet of positive absorption took pace in the 2nd quarter. The article said that the Fox Valley submarket was one of 7 submarkets that experienced positve absorption. Is this a trend in the making? Perhaps. Some of the larger industrial firms are reporting a pipeline of big deals in the works. The deals that are getting done are getting done at rates and terms very favorable to the tenants. This tenant's market is expected to continue until the net absorption rate remains positive for a few more periods.

Suburban Office Vacancy Rates Continue to Increase

July 7, 2010 1:56 PM 

A July 6 Crains article reported 96.5 million square feet of suburban office space in Chicago of which 25.4% (one out of every 4 square feet) is currently vacant. The second quarter of 2010 was the 13th consecutive quarter of increasing vacancy. This was the highest vacancy rate in more than a decade. The vacancy rate is directly related to new jobs. The U.S. Labor Department announced in June only 83,000 new private sector jobs were added to the economy. That's not even treading water. Some brokers are reporting some larger companies putting preliminary feelers out for new office space but the small and medium size companies, the one's that generate the bulk of jobs, still remain hesitant to hire. If you're the one owning vacant space, call us. We may be able to give you some ideas how to fill it up or a least get some cash flow.