Commerce Communique'

Apartments are Sexy: Simple, Smart, Conservative

Utah Facilities

by Mark Jensen

November 09, 2011

Apartments are sexy. Sexy is simple, smart, conservative and looking for a long term relationship. Some who read this article will immediately want to argue that statement. However, in Utah right now it would be hard to argue otherwise. So let me explain. I originally started brokering apartments because I am conservative by nature, and apartments in the greater Salt Lake City area are arguably the most conservative commercial real estate investment play out there. Utah is a safe bet. Owning apartments in Utah has proven to be like buying an insurance premium for your money.

Click here to read the entire article

New Hope or New Risk for Commercial Real Estate?

Utah Business Magazine

by John Taylor, Director of Corporate Services, Commerce Real Estate Solutions

21 March 2011—

Hope has been the inspiration for many great things in history. Columbus discovered the Americas hoping to find a quicker and more direct route to the Far East. Now there is hope for the commercial real estate industry and its “Queen Isabella,” the lending and mortgage industry.  A new strategy is emerging called a “Hope Note.” To understand what it is, you must first understand what led to its creation.

Read the entire article: http://utahbusiness.com/issues/articles/10810/2011/03/the_new____hope_note___

Salt Lake County Office Market Shows Signs of Life

It is no secret that the success of the office real estate market is an indicator of the state of the economy. Without the success of businesses, the economy will not begin to thrive. With this in mind, Salt Lake County has been aching for a sign of hope that the office real estate market has positive results to report. Recent publications by the Deseret News and the Salt Lake Tribune have begun to highlight the positive changes that downtown Salt Lake City is seeing. The boost of patronage to the downtown central business district, in addition to the highly anticipated completion of City Creek are significant reasons that these publications have used in their explanations. While these concepts seem to be reasonable factors that would forecast a strong economic push on the state, our 2010 first quarter numbers don’t seem to match this optimistic view.

2010’s first quarter saw vacancy rates rise to 16.2%, up from 13.7%, and direct absorption rates of -76,737 sf, due largely in part by the negative absorption in the Periphery and Suburban markets, which negated the positive absorption seen in the Central Business District. However, as the second quarter wraps up, this optimism does not seem so far-fetched.

As the numbers are finalized for the second quarter’s absorption rates, there are many positive economic indicators that suggest that Salt Lake City’s real estate market has begun to take a turn for the better. Salt Lake County has seen an array of notable lease transactions, and the positive effects of these transactions are being seen across all sectors and quadrants, not just in the Central Business District.

Significant lease transactions have occurred all along the Salt Lake Valley. Vehix has moved its offices downtown into the Walker Center, leasing prime downtown space. Additionally, Goldman Sachs has taken 150,000 sf in 222 South Main, and already plans to expand its business by over 400 new positions. In the suburban office market, the RiverPark complex in the Southwest quadrant has adopted new corporate headquarter locations with Advanced MD Software, taking over 52,000 sf, and Provo Craft, who will be occupying over 65,000 sf.  

These considerable transactions, coupled with new leasing activity in Class A and B buildings, may reflect a slight decrease on vacancy. Salt Lake is becoming a viable option for outside companies to reduce their business cost. The lack of new construction has allowed for absorption in existing office space, ultimately causing an increase in absorption in Class A and B buildings in both the suburban and downtown markets. With these factors in place, the Salt Lake City office real estate market seems to be experiencing a positive push.

Vacancies in desirable properties with significant square footage still allow for businesses to take advantage of this economically advantageous time. Additionally, downtown Salt Lake has many available spaces with great potential for tenant improvements for a variety of businesses.

While the second quarter’s final numbers will be released in the coming weeks, these positive factors are evidence of a shift into positive absorption rates. With current absorption estimates at 250,000 sf, the Salt Lake County office market does seem to be taking advantage of the economic distress by finding new ways to appeal to potential tenants. The stronger market indicators of this year’s second quarter might be a reason to begin instilling hope into the future of the office real estate market. 

Chris Kirk and Todd McLachlan are Office Specialists with Commerce Real Estate Solutions. They can be reached at 801.303.5495 or ckirk@comre.com and tmclachlan@comre.com. 

Reproduced with permission of The Enterprise, Utah's business journal, www.slenterprise.com.

New Market Rules for Commercial Real Estate

With computers it is a yes or a no; it is all ones and zeros. That is unless your computer acts human and freezes up. You see, with humans we have yes, no, maybe, and what if. The current commercial real estate market is reacting to the human element, and for the past two years now, we are operating on maybe and what if, with little or no yes and no.

Most have had the good pleasure of reading or listening to recent commercial real estate market forecasts and reports. For those of you who have not let me summarize, “Chicken Little has called it and the sky is falling.” If you purchased or refinanced in ‘05, ‘06, ‘07, or ‘08 and used high leverage, Chicken Little is right, and much if not all equity has fallen out of the deal.   I am not a doom and gloom guy, it is time to go back to the yes and no, without the maybe and what if.

Read the entire editorial: Download April 2010 article2

John Taylor is an Investment Specialist with Commerce Real Estate Solutions. He can be reached at 801.303.5415 or jtaylor@comre.com.

Reproduced with permission of The Enterprise, Utah's business journal, www.slenterprise.com.

Current and Future Health of the Industrial Market

What is the current state of health of the industrial real estate market, and what does 2010 look like? The first question may be…what is healthy? By normal standards, a vacancy factor around 8 percent is considered healthy for the market. This allows tenants to have multiple good choices to locate their businesses, and enough competition to obtain fair lease rates for both tenant and landlord. A smaller vacancy factor gives the landlord the advantage and a larger vacancy factor gives the tenant leverage in their negotiating power. This is under “normal” circumstances. It is fair to say that the current circumstances are not normal!

Read the entire editorial: Download March 2010 article

Mike Farmer is an Industrial Specialist with Commerce Real Estate Solutions. He can be reached at 801.303.5422 or mfarmer@comre.com.

Reproduced with permission of The Enterprise, Utah's business journal, www.slenterprise.com.

Washington County: Economic Outlook to Some Lease Language Nuggets

 A recently released “Economic Snapshot” for Washington County from the Department of Workforce Services show that the Washington County job market bottomed out in the first quarter of this year. Nationally, the job market appears to have bottomed out the third quarter of this year. It is important to note that “bottoming out” does not necessarily mean things are getting better; it simply means things are not getting worse. Additionally, new unemployment claims in Washington County are down from 2008 levels.

Focusing on trends, it is interesting to look at the year-over-change in the MSA Area Housing Price Index (HPI), (see below graph). There is a lock step fashion in timing, as well as the magnitude of the St. George housing market in comparison to the Las Vegas and Salt Lake markets. In addition, the degree of decline for the Las Vegas market in comparison to St. George is of importance to note. Studying these trends, you can see where the recovery occurs for the St. George market.

Taking advantage of the current commercial market offerings, many large players are now coming off the sidelines and taking a look at Washington County commercial property. This does not mean values are recovering and pricing is strengthening; instead, deals are now coming to the point where they are simply too good to pass up, especially given the growth potential for Washington County.

 In regards to the Washington County industrial market, as of mid-year we stood at an 11 percent vacancy rate, which has moved slightly upward. Industrial lease rates are averaging $3.60 to $7.80 and unemployment rates sit around 7.7 percent. What does this mean for the industrial market?

·         Vacancy is definitely viewed upon poorly by owners, but it also becomes a blossoming opportunity for groups that have had interest in Washington County but have not made the move.  Lease rates are much more favorable and owners more flexible.

·         A few years ago it was impossible to get space in Millcreek Industrial. Now, several property options are available offering companies quick and easy access to the surrounding area.

·         It was extremely difficult to purchase industrial space due to the dearth of offerings, but that has changed dramatically.  Space is now available, and is priced well below replacement costs in some instances.

·         The airport is still moving forward, the new interchange is finished, fiber is moving farther into Fort Pierce and prices keep moving down.  Now is the time to move in and be in a position to take advantage of the infrastructure improvements.  When the economy rebounds, these enhacements will serve to raise prices back up.  Early worms will be grateful they made a decisive move and saved valuable money, fence-sitters will be caught gawking and will lose the prime opportunity.

·         Housing is significantly more affordable and will allow a wide range of choices for owners and employees moving to the area.

·         Unemployment has tapered off, but at current levels good employees are easier to find and attract with reasonable and competitive compensation packages.

Changing direction a bit, we now turn our attention to a concept that has often gone unnoticed in leases. Before we go on, it is important to note, agents and brokers are not attorneys, it is always a good idea to have your attorney review a lease or purchase agreement to make sure your interests are protected as negotiated.

With that said, what is a non-disturbance clause or agreement? It benefits the tenant in case of a lender foreclosure on the property or premises they occupy. The agreement is between a tenant, a landlord and a landlord's lender. The tenant agrees that his/her interests in the premises are subordinate to the lender's interests. The lender promises that if there is a default by the landlord on the mortgage, the lender will honor the terms of the lease and not disturb the tenant, so long as the tenant is not in default. Should a lender foreclosure take place without this clause in place, the tenant would be at the mercy of the lender. The lender could demand new terms (e.g. higher lease rate, increased lease escalations, removing or altering lease extensions and terms, etc).

Given our current environment, this clause is becoming an increasingly important protection for the tenant and one to ensure is in your current lease and future lease agreements.

 

  

Travis Parry is an Industrial /Investment Specialist with Commerce CRG, St. George. He can be reached at 435.986.4708 or tparry@commercecrg.com.

Jeremy Dickamore, is an Industrial/Investment/Land Specialist with Commerce CRG, St. George. He can be reached at 435.986.4707 or jdickamore@commercecrg.com.

Utah County: Doing What We Can

Eighteen months ago, it would have been hard to imagine that I would be pleased with an eight percent decline in revenue from Q1 2008 to Q1 2009.  But, 18 months later, when that was the report for the Provo/Orem office, I definitely was pleased.

Read the full report.

Download CCRG Enterprise July 2009

Jon Anderson is Partner & Principal Broker of the Provo/Orem Commerce CRG office.

He can be reached at 801.377.2400 or janderson@commercecrg.com.

Reproduced with permission of The Enterprise, Utah's business journal, www.slenterprise.com.

Utah Commercial Real Estate…Distressed Assets Ahead?

Investors, brokers, and appraisers are all waiting on the lending institutions to place large volumes of distressed commercial properties on the market at deep discounts from perceived current market values. Memories of the RTC days are still with us and many industry professionals see it all happening again. However, 20/20 hindsight frequently colors the memory with a “rosy hue.” The actual experience of the 1980’s was not all together a pleasant one for many. That was a time when the savings and loan industry collapsed for a variety of reasons, including fraud and poor tax policies that led to severe overbuilding and poor lending procedures with lax underwriting. Looking back many view the RTC era as the Redistribution of The Commercial property act and have forgotten how many real estate fortunes were wiped out during this period.

Read the full report:

Download JuneEditorialJTaylor

 

John G. Taylor, MAI CCIM is an Investment Specialist with Commerce CRG. He can be reached at 801.303.5415 or jtaylor@commercecrg.com.

Reproduced with permission of The Enterprise, Utah's business journal, www.slenterprise.com.

Something Different, Something New…Foreign-Trade Zone

A new development, with an exciting element has been announced in the State of Utah. On May 14, Salt Lake City announced the new Foreign-Trade Zone (FTZ), which will be developed by The Rockefeller Group. Sitting on approximately 55 acres adjacent to the Intermodal Hub in the Northwest Quadrant of Salt Lake City, The Rockefeller Group has planned an industrial/business park.

 

What is an FTZ?

“A Foreign-Trade Zone is a restricted-access site, in or adjacent to a Customs port of entry, operated pursuant to public utility principles under the sponsorship of a corporation granted authority by the board and under supervision of the Customs service.”

Source: Regulations of the Foreign-Trade Zones Board (19 CFR Part 400)

 

What is significant about this business park?

Owned, managed and developed by The Rockefeller Group, this is the only active FTZ in the State of Utah. Designed in a flexible manner, this business park will accommodate all build to suit opportunities in the marketplace. The site is planned for development of 1.2 million square feet of warehouse distribution and/or light manufacturing facilities. In addition, all properties will have “state of the art” LEED certified buildings.

 

What does this mean for local, national and international businesses?

• Duty Deferral: Imported products admitted to the FTZ are not entered into the Customs territory until their withdrawal from the FTZ. Therefore, users obtain a cash flow savings by deferring Customs duties until the merchandise leaves the FTZ for consumption in the U.S.
• Duty Elimination: Imported products admitted to the FTZ and subsequently destroyed in the FTZ or exported from the FTZ are not subject to Customs duties.
• Duty Reduction: Imported products admitted to the FTZ can be placed in a special status that allows the merchandise to be classified and appraised in its condition as withdrawn from the FTZ. For manufacturers this means that an imported component with higher rate of duty can be classified and appraised in its finished product form, with a potentially lower rate of duty, thereby reducing the amount of duty owed.
• Zone-to-Zone Transfer: If the company utilizes more than one FTZ, merchandise may be transferred from zone to zone in order to extend the deferral benefits further. This benefit can be implemented up and down the supply chain by incorporating the activities of suppliers and customers.
• Direct Delivery and Weekly Entry/Export: From a just-in-time inventory perspective, the FTZ program offers significant benefits. Users may obtain permission from Customs to move merchandise directly from the port of arrival to the FTZ avoiding delays at congested ports and minimizing exams. On the outgoing side, users may obtain permission to ship unrestricted weekly (24 hours per day, 7 days per week) based on an estimate approved by Customs before the start of the business week. Broker fees and merchandise processing fees paid to Customs may be significantly reduced by filing one entry per week versus daily entries or one per shipment. Goods move in and out of the facility on an expedited basis allowing for a seamless supply chain from vendor to customer without maintaining unnecessarily high levels of inventory.
• Production Equipment: Certain duty deferral and reduction benefits also apply on production equipment admitted to the FTZ for assembly and testing prior to use in production.

Source: The Rockefeller Group Foreign-Trade Zone Benefits Overview

 

This is an exciting development in our state and represents a unique and outstanding opportunity to accommodate your international needs in The Rockefeller Group Foreign-Trade Zone in Salt Lake City. 

William D’Evelyn is the Principal Broker and Managing Partner at Commerce CRG. 

Reproduced with permission of The Enterprise, Utah's business journal, www.slenterprise.com.

Where is the Bright Spot?...RETAIL

The past six or so months have been “a bit” challenging. It seems every which way we turn we are bombarded with national statistics pronouncing unfavorable projections, negative reports, and downbeat news. Are those projections, reports and news coverage true? For the most part, yes. Does that set a negative tone, bring us down and freeze future action? Of course! We need to change our focus from the negative to the “bright spots” occurring at the same time, beneath the headlines. We can make the choice as to what news and events we pay attention to.

 

Retail has definitely been hit by these challenging times. However, like everything else there are bright spots in the current retail market… So, where are these supposed bright spots?

 

• Fast food restaurants featuring discounted value menus are doing very well. Times are tough for all as expendable income has decreased and consumers are looking for bargains. This area of the industry should continue to grow even after the market rebounds.
• Grocers had sound performance in 2008, and 2009 should follow suit. National grocers such as Wal-Mart and Kroger added new locations, while Winco Foods and Sunflower Farmers Market announced plans to enter the market with multiple locations. Local grocers such as Harmons are standing strong as well. Again, with expendable income decreasing, consumers are tightening their belts by staying home and cooking meals. The exception of eating out is of course fast food value meals.
• Local businesses with single concept outlets are taking advantage of the current market and opening additional locations.
• This is a “tenants market” and will be for at least two more quarters. This is the time to “blend and extend,” as many in the industry are coining the term. Work a new deal and extend leases with landlords to keep spaces from going dark. Likewise, landlords should welcome and present new creative ways of keeping space from going dark to “non-traditional” retail tenants.
• Owner user opportunities are more attractive because of new SBA lending guidelines, which have decreased the exposure to local banks. This is another area of the market, in addition to local leasing where deals are getting done.

 

It isn’t all doom and gloom. People are cautiously optimistic and we believe we will see a rebound in the third or fourth quarter of this year. Even though there is no new product coming online, existing product vacancy will stabilize or decline.

 

If you have weathered the economy this long, you should make it through to see the other side. Keep open communication and welcome new and creative ideas. There are bright spots!

 

Rick Newton is one of eleven Retail Specialists in the Commerce CRG, Salt Lake City office. Rich can be reached at 801.303.5485 or rnewton@commercecrg.com.

Reproduced with permission of The Enterprise, Utah's business journal, www.slenterprise.com.