Booming real estate market, says SIOR data

Saw this information on sior.com

SIOR Index Reaches New Record in Second Quarter of 2016

Washington DC- September 2016- Members of the Society of Industrial and Office REALTORS® (SIOR) participated in the Commercial Real Estate Index survey, supplying their knowledge of the industrial and office market conditions in the United States for the second quarter of 2016. The responses, given by 185 SIOR members, compiled by SIOR in association with the National Association of REALTORS® (NAR), present an accurate depiction of the current industry for the middle of 2016.

logosiorOffice and industrial markets increased in the second quarter; with the SIOR Commercial Real Estate Index increasing 3.6 points moving from 119.5 to 123.1, putting the CREI over what is considered the balanced market threshold at 100 points. The SIOR Index measures ten variables pertinent to the performance of U.S. industrial and office markets (see methodology).

Leasing: 48 percent of respondents felt that leasing activity in their market is higher than historic levels; 27 percent found leasing in line with averages, while 25 percent found leasing below normal.

Rents decreased this quarter as 4 percent of respondents felt that asking rents are below where they were one year ago (7 percent last qtr.); 96 percent feel that asking rents are in line with or slightly above long-term averages.

Vacancies: 13 percent of respondents thought that vacancy rates are higher than a year ago; 20 percent contend they are the same and 68 percent say they are lower (75 percent last quarter). Subleasing availability: 4 percent felt that there is ample sublease space available, compared with 8 percent last quarter; 60 percent considered subleasing to have a small influence on the market.th-3
In terms of tenant concessions—20 percent felt that tenants were benefiting from moderate concessions to deep discounts to rents (22 percent last qtr.); 26 percent of respondents found a market in normal negotiating balance; 54 percent thought the market favored the landlord.

Construction activity: 41 percent indicated rising new construction; 21 percent found development close to historical averages; 19 percent of respondents indicated levels lower than normal, and 19 percent mentioned that there is no new commercial construction in their market.

th-4In terms of development acquisitions—it was a buyer’s market according to 13 percent of respondents (14 percent last qtr.); 31 percent found it a balanced market, while 56 percent experienced a seller’s market (48 percent last quarter).

On the investment side, prices were below replacement costs in 35 percent of the markets, compared with 34 percent last quarter; prices were above costs in 40 percent of the markets.

Local economies—11 percent of respondents feel that their local economy is slowing or contracting, compared with the 14 percent from last quarter. Meanwhile, 55 percent considered that the local economy is strong and improving (53 percent last quarter).

National Economic Impact

19 percent of respondents felt that the national economy is having a negative impact on their local market (18 percent last qtr.); 38 percent felt that the national economy was having a positive impact on their markets.
When asked about the outlook for the next three months—14 percent indicated that business was going to be down from current levels, 42 percent of respondents felt the market will be maintaining the current level during the next three months, and 44 percent pointed to expected improvement in the market.th-6

Regional Breakdown

The West posted the highest index value of 127.5 followed by the South at 126.6. The Midwest showed an index of 122.3, followed by the Northeast at 116.1.

Index Summary

Overall 123.1 Up from 119.5 in April

Office 115.0 Up from 107.8 in April

Industrial 128.5 Up from 125.6 in April

Northeast 116.1 Up from 108.2 in April

Midwest 122.3 Down from 127.0 in April

South 126.6 Up from 124.7 in April

West 127.5 Up from 120.7 in April

Methodology

The SIOR Commercial Real Estate Index is constructed as a “diffusion index,” a very common and familiar indexing technique for economic measures. Other examples of diffusion indexes include the Index of Leading Economic Indicators, the Consumer Confidence Index, and the Institute of Supply Management’s Purchasing Managers’ Index. In the SIOR Commercial Real Estate Index, a value of 100 represents a well-balanced market for industrial and office property. Values significantly lower than 100 indicate weak market conditions; values significantly higher than 100 indicate strong market conditions. The theoretical limits of this Index are a low of zero, and a high of 200, though it is unlikely that such limits would be approached as long as the property markets are operating efficiently.

The Index is based on a survey questionnaire with ten topics. The topics covered are (1) recent leasing activity; (2) trends in asking rents; (3) trends in vacancy rates; (4) subleasing conditions; (5) levels of concession packages in leases; (6) development activity; (7) site acquisition activity; (8) investment pricing levels; (9) the impact of the local economy on the property market; and, (10) the effect of the national economy on the property market. Survey respondents are given five choices. For each topic, five choices are provided, corresponding to conditions that are very weak, moderately weak, well-balanced, moderately strong, or very strong.

Federal Reserve Bank on the current recovery…the good and the bad.

Last week I attended an SIOR event that featured a speaker from Federal Reserve Bank of Chicago, here are my notes.

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Recovery from 2009 has not been as strong as past recessions. Why?
1. Hesitant growth since 2009
2. Spike in financial stress. Tight lending principals. Now stress is low.
Solutions:
1. Fed has kept Fed Fund target rate close to zero. Fed raised rate 50 basis points in Dec 2015
2. Quantitative easing. Buying securities, fed holds over $4T.
Impacts:
1. Food below inflation
2. Energy (oil) price are low.
3. Long term unemployed (more than 6 months) is at its highest historical level, but it is going down. One example would be people who want to work full time only working part time.
4. Labor force participation is low, but getting better. One reason may be wages have not increased.
5. Broad based recovery. Auto and auto parts/components. Fed sees a 2.4% manufacturing increase in 2017.
6. Dollar has been increasing. Good for US consumer detrimental for exports/manufacturing.
Next:
1. Inflation is beginning to increase +\-2%.
2. Employment has been steady, but not growing too much.
3. IL. Unemployment is creeping up (bad).
4. Housing starts are increasing steadily over 1M per year.
5. Interest rates are staying low.

Market’s strength = closer to the end?

{Singing} It’s beginning to look a lot like 2007…record low cap rates, spec construction at a fever pace, high rental rate expectations, bullish forecasts of continued growth.  Despite what our presidential candidates would tell us, the real estate world is on a roll.

thMulti-channel distribution networks are absorbing distribution space at a phenomenal pace. eCommerce has in effect made warehouse equivalent to retail! More technology and more people are being deployed to meet global supply chain demands. The market dynamics are pushing all boundaries.

Unfortunately all good things must come to an end. Believe me I have my board and plan to ride this wave at maximum pace.  But how long can this last?  I hope a long, long time! In the mean time keep singing.

Tips on YouTube marketing in Entrepreneur Magazine.

Posted by Daniel Smolensky, SIOR

This information appeared in a YouTube blog post on January 2, 2014

In his book Entrepreneur Magazine’s Ultimate Guide to YouTube for Business, marketing and public relations consultant Jason Rich show you how to master the secrets of successful “YouTubers” and put your brand, product or service in front of millions of potential viewers. In this edited excerpt, the author outlines 12 ways you can promote and market your small-business YouTube videos.

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When it comes to marketing and promoting your small-business YouTube videos, follow these 12 basic strategies:

1. Start by using the tools available directly through YouTube. For example, provide a detailed and accurate title and description to each of your videos, and associate tags (keywords) that are directly relevant.

2. Use a call to action within your videos to encourage people to like, rate, comment on and share your videos.

3. Begin by promoting your videos to the people you know, including your real-life friends, relatives, customers and clients. Ask these people to watch your video(s) and share them with their online friends.

4. Take advantage of the power and capabilities of the online social networking sites to promote your videos. As a spokesperson for your company, for example, become active on Facebook, Google+ and Twitter, as well as other relevant services. Be sure to create an online presence for your business on Facebook and/or Google+, and then use that presence to promote your videos.

5. Incorporate your videos into your own company’s website and blog.

6. Share links to your videos with your existing customers or clients via opt-in email.

7. Use public relations techniques, such as using press releases to contact bloggers, editors, reporters and producers in order to generate free media coverage for your videos in mainstream media, as well as in blogs that cater to your target audience.

8. Get your videos (and your YouTube Channel page) listed with the major search engines, including Google, Yahoo! and Bing, and then focus on SEO strategies to get the best possible listing placements.

9. Try to collaborate on videos with other companies that are already utilizing YouTube effectively and that are targeting the same audience, but that are not in direct competition with you. This will allow you to capture the attention of your collaborator’s viewers and subscribers.

10. Start promoting your YouTube channel within your company’s printed catalogs, brochures, and sales materials, as well as within its existing traditional advertising.

11. Consider paying for keyword advertising on Google, Yahoo!, Bing and Facebook. Google AdWords for Video is also a very cost-effective and powerful tool for promoting YouTube videos.

12. If you have the budget, hire a YouTube video marketing company to help you plan and implement an online promotional campaign for your videos.

Contact Daniel Smolensky, SIOR at dan@taurusmodal.com

WSJ reports: 2016 FSBA changes to impact real estate leases

by Emily Chasan, Wall Street Journal

The U.S. Financial Accounting Standards Board is set to vote Wednesday on a decade-long overhaul of lease accounting rules that promises to bring as much as $2 trillion in off-balance sheet assets on to corporate books.
Once the rules are finalized, companies are likely to get a better handle on what their balance sheets might look like going forward.

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Drugstores, large retailers, restaurants and supermarkets are likely to be most affected under the rules because of significant real estate leases. But lease accounting changes will also have a big impact on banks that lease space for their retail branches, airlines that lease planes and shipping and utilities companies that lease their vehicle fleets.
The FASB says its leasing overhaul aims to “clarify the definition of a lease” and “increase transparency and comparability” among companies by bringing leases on to the balance sheet, according to a meeting handout posted ahead of Wednesday’s board vote.
Companies will likely have to take a fresh look at contracts and talk to lenders about the new look of their balance sheets, if they haven’t already.
“Companies that have been anticipating these changes have found strategic opportunities to restructure the way in which their leases are negotiated in order to mitigate some of the less desirable impacts of these new standards on their financial statements,” said Marc Maiona, founder at adviser LeaseCalcs Inc.
As the WSJ’s Michael Rapoport reports, the rules will be a significant change:
Some of America’s best-known companies—names such as AT&T Inc., CVS Health Corp.and Delta Air Lines Inc.—likely will soon have to effectively boost the debt they report on their balance sheets by tens of billions of dollars. The total possible impact for all companies: as much as $2 trillion.
Within a few years, companies may have to add to their books the cost of many leases for real estate, aircraft and other items that aren’t already carried there. U.S. rule makers are set to vote Wednesday on whether to approve in principle long-awaited new rules requiring companies to make that addition, though the move wouldn’t take effect until at least 2018.
If approved, as many observers expect, that change could dramatically boost the reported leverage for retailers, restaurant chains, airlines, package-delivery companies and other companies that use leases heavily. Companies must already disclose their lease obligations, but it is done in the footnotes to their financial statements; they aren’t included in the balance-sheet numbers to which investors pay the most attention.

Write to Emily Chasan at emily.chasan@wsj.com.

SIOR leaders discuss boutique commercial real estate firms

Boutiques Resilient in Face of M&As

By John Salustri | Globe Street

CHICAGO—The spate of multinational service providers gobbling up—or being gobbled up by—other multinational service providers leaves one to wonder what the smaller boutiques, the moms-and-pops of the industry, are thinking. Members of the Independent Brokers Group of the Society of Industrial and Office Realtors aren’t flinching.

Thornburgh: “There will always be a substantial place in the market for the highly skilled boutique and regional firms.”  It was an appropriate time to chat with the folks of SIOR (a GlobeSt.com Thought Leader), given that the association’s Fall World Conference is set to kick-off here on October 8. And while the consolidation trend does tip the scales of competition toward the big boys, there’s plenty to be gained from the boutiques.

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“The larger firms can control the market, setting rental rates and term structure,” says Jason M. Crimmins, CCIM, SIOR, president of the Short Hills, NJ-based Blau & Berg Co. “But there are corporate users who recognize the value and local expertise that independent firms have to offer. As an independent, we bring not only our local proficiency but every other SIOR independent’s local expertise.”

That’s where the IBG comes in, he says. “The IBG has been crucial in uniting our firms, and helping us display our local market expertise while providing a global network of SIOR professionals.” In essence, he says, the IBG gives otherwise regionally restricted firms an unprecedented national reach.

Robert G. Thornburgh, SIOR, CCIM, CPM, president and CEO of Heger Industrial in Long Beach, CA, is equally philosophical about the rise of the M&A trend—and the strength of the independent broker in the face of that trend. “All businesses, large or small, are continually searching for efficiencies and developing ambitious growth plans,” he observes. “A vibrant company closely examines procedures; systems; and inevitably, its people.” As a result, he adds, there should be no surprise that consolidations are taking place. “It’s a natural part of this process.”

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Crimmins: “Relationships can become a factor only when results are provided.” But that activity doesn’t change the role of “the skilled, independent niche operator. Consolidation and recent growth are certainly in part being fueled by larger corporate clients who are opting for the efficiency of a single provider,” says Thornburgh, who is director of SIOR’s Western region. “However, there will always be a substantial place in the market for the highly skilled boutique and regional firms that continually place a premium on relationships and delivering a higher level of service.”

Crimmins notes, however, that smaller firms still have to focus on the basics. “Relationships become a factor only when results are provided,” he says. “All clients ultimately focus on the bottom line. Given the proper platform to distinguish broker from broker, they would ultimately choose performance over relationships.” In the smaller firm he believes, clients are most likely to get both.

It’s the nature of the market that the mega-mergers will continue. It’s the nature of the smaller shops, to simply keep on keepin’ on, to keep their eye on that performance and those relationships. “As an independent boutique company,” says Crimmins, “all we can do is continue to make deals, develop stronger relationships with our clients and continue to get our name out there.”

Click here for link to Globe Street Article

http://www.globest.com/blogs/sior/sior/Boutiques-Resilient-in-Face-of-M-360498-1.html

FTZ

Enjoyed Foreign Trade Zone webinar today. Facts I gleaned:

Retail apparel & consumer goods and manufacturing are leading FTZ pursuers

Caps on Merchandise Processing Fee (MPF) of $480/week

Time savings at the dock; Direct Delivery allowance, entry selectivity circumvention.

Ocean cargo more than air cargo tends to be more applicable to FTZ.

A portion of a building can be designated as an FTZ.

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Great info on environmental risk when purchasing commercial real estate.

Buying Commercial Real Estate? Don’t Get Stuck Having to Clean Up the Mess!

Article By Gail Brown, JD, Associate Vice President, GPE Commercial Advisors

If you are considering purchasing commercial real estate, you should also consider retaining an environmental professional to survey the property. The purposes of such a survey are both to make sure you are not purchasing a contaminated asset, and to protect yourself from liability for the cost of cleanup in the event that contamination is later found.

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Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), someone who purchases contaminated real estate may be liable for the cost of cleanup of that property even though he did nothing to cause the contamination and even though he did not know when he purchased the property that it was contaminated. Moreover, liability is what is referred to as “joint and several”, meaning that, if there are multiple parties responsible for cleanup (such as you as the current owner and the person or entity from whom you purchased), each one of them is responsible for 100% of the damages. Thus, if contamination is found on property you purchased, you could be responsible for 100% of the cost of remediation and your only remedy will be to sue the seller for contribution. If the seller cannot be found or is insolvent, you are up the creek without a paddle.
Under CERCLA, there is a defense against liability for persons determined to be “innocent landowners.” In order to be found to be an innocent landowner, you must show that the contamination occurred prior to the time you purchased the property, that you performed “all appropriate inquiries” prior to purchasing, and that you did not know or have reason to know of the contamination.
Often, the type of survey obtained and the depth of the investigation is lender driven; that is, if you are obtaining a loan for the purchase of the property, the lender will specify what type of investigation it requires. Its decision is based on ensuring that its collateral has value, not protecting the borrower from liability.
In limited situations, the bank may require nothing more than a Transaction Screen Process. Transaction Screen’s are becoming more and more rare but may still be accepted by some banks if, for example, the loan amount is small and the property is at low risk for environmental contamination, such as native land in an area the bank believes has not been previously developed. A Transaction Screen consists of limited historical research and government record review, a site inspection and a Transaction Screen questionnaire that is completed by the property owner and occupant. It is often conducted by an environmental professional but, unlike a Phase I environmental survey, can be conducted by anyone, including the bank, a property owner or a broker. A Transaction Screen Process offers no protection against CERCLA liability.

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In most situations, the bank will require that a Phase I environmental survey be conducted by an environmental professional. During a Phase I, no soil, groundwater or building materials sampling or analysis is done. Completion of a Phase I involves four-steps. First, the examiner will conduct interviews of the current owner and tenant, and adjacent property occupants, to determine how the subject property was used and what contaminants may have been present on or near the property. Second, the investigator will do an on-site inspection to look for evidence of potential contamination, such as industrial products or chemicals on the property, patched drains and noxious odors. The third step in a Phase I survey involves historical research. During this stage, there are several sources the examiner will consult, including: Sanborn fire-insurance maps, produced from 1866 to 1963 to identify fire insurance risk factors in buildings in certain urban areas of U.S. cities;historical aerial photography to determine prior uses of the site and nearby property; local building and fire departments to determine what historical building and underground storage tank permits have been issued; and, hydrological, topographical and geological data to evaluate the risk of migration of contaminants from nearby areas through the soil. And finally, he will consult a reverse telephone directory to identify prior tenants of the property and thereby glean their potential uses. The final stage of a Phase I is to consult state and federal environmental databases to determine if, for example, the subject property is in the vicinity of an identified brownfield site, has been the subject of corrective action directed pursuant to the Resource Conservation and Recovery Act due to hazardous waste being generated on the site, is a state or federal Superfund site, is listed on a state or national database as the site of a toxic or chemical spill or accident, or has underground storage tanks that were previously reported as leaking. In the Phase I report, the examiner will give findings and recommend whether a Phase II environmental survey should be conducted.
The purpose of a Phase II survey is to determine if contamination does in fact exist. During this inspection, the examiner will obtain representative soil samples to screen for chemical or metal contamination. In addition, there may be vapor gas sampling, surface or ground water testing, and mold, asbestos, lead based paint or radon testing.

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Once it is determined that contamination exists and needs to be remediated, a Phase III will be conducted to define the vertical and lateral extent of suspected contamination and to develop and implement a remediation plan. This may include, for example, excavation of a portion of the land or cleaning of a drywell.
drumsIf there is extensive contamination, a Phase IV survey is conducted to develop a long term remediation plan. An example of contamination that would require a Phase IV survey is groundwater contamination resulting from an industrial spill or illegal dumping of contaminants. A Phase IV remediation plan may take years to implement and cleanup generally occurs until verification samples show contamination within governmentally acceptable standards.
If you would like to discuss environmental risks of your property or a property you are considering purchasing, please contact Gail Brown, JD.
Many thanks to Jay Turk, President of RAL Consulting, Inc., and Dave Madsen, President of Preferred Environmental, for the invaluable information used in the article. To view RAL Consulting’s website, click here.

Article By Gail Brown, JD, Associate Vice President, GPE Commercial Advisors

Click the link to go to the bloggers page:

http://blog.thebrokerlist.com/buying-commercial-real-estate-dont-get-stuck-clean-mess/?utm_source=thebrokerlist+subscribers&utm_campaign=3279be1d92-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_0ff012c8df-3279be1d92-328832261

O’Hare rail crossing delays will soon be over!!

Irving Park Rd (Rte 19) and York Rd (Elmhurst Rd) scheduled for Labor Day 2015 completion

Eastbound and westbound lanes on Irving Park Road east of York Rd (Elmhurst) will be closed on March 14-16, 2015 and March 21-23, 2015. BUT this should be the end of the grade rail tracks that has reeked havoc with traffic for nearly 60 years, since O’Hare Airport opened. Two months later on Labor Day, May 25, 2015, after the all concrete and intersection work is complete both the CP and CN rial will be elevated…no more waiting for the trains…supply chains rejoice!!

IL19 & York Rendering

More information on the project can be found by clicking this link to IDOT.