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Miami Commercial Investment

Miami’s commercial vacancy rates have been steadily ranking among the lowest in Florida for the past few years. According to the Miami Association of Realtors’ Realtor Commercial Alliance, this means that there has been an increase in local investment from various global investors and companies.

gary richetelli miami

An article published by Miami Edition regarding commercial news in real estate notes Miami’s vacancy rates for commercial sectors, stating that they are performing better than average for the United States as a whole, apart from the multifamily sector, which is .1 percent lower. The article details, “Miami’s vacancy rates for office (14.9 percent), industrial (5.3 percent), retail (6.3 percent), and multifamily (4.4 perfect) are the lowest among major cities in Florida,” (Gerrity, Miami Commercial Investment Activity Upticks, Aided by Low Vacancies). These numbers compare to the national vacancy rates as of May 2015, which were recorded by NAR and Reis, calculated in at 15.6 percent for office, 8.4 percent for industrial, 9.6 percent for retail and 4.3 percent for multifamily.

gary richetelli west east building miami

This information is partially the reason why Miami ranks as one of the world’s top global cities and continues to grow as a development platform for a variety of new businesses. According to Miami Edition, Miami Commercial Alliance President, Barbara Tria, commented:

“‘Technology companies and other businesses are moving to Miami largely because of the region’s top-tier cultural offerings, outdoor lifestyle, and affordability compared to other major cities around the globe,’” (Gerrity, Miami Commercial Investment Activity Upticks, Aided by Low Vacancies).

For more information regarding Miami’s commercial investment market, read this article published by Miami Edition, which details each sector of commercial development within the city.

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Commercial Real Estate Trends of 2015

Contributors of the Magazine of the Urban Land Institute, Peter Burley and David Lynn, published an article earlier this year about the potential trends for 2015 commercial real estate based on trajectories from the entirety of 2014. Though there are many variables that determine trends of commercial real estate for the United States, here is a recap on what the two predicted would be the movement of 2015 commercial real estate:

The first thing Burley and Lynn noted was that there would be increased allocations and capital flows.  Since many institutions, including high-net-worth investors, were under allocated to real estate, and there were many strong four-to-five year performance increases of NCREIF and NAREIT, expectations concluded that commercial real estate investment capital would increase. According to Burley and Lynn, “The significant amount of capital would be vexing if not for the fact that real estate seems to offer some of the best risk/reward propositions around, particularly given the multi-year run-up in equity and bond values,” (Six Trends in Commercial Real Estate to Watch For in 2015).

Their next prediction was that industrial real estate would continue its steady improvement.  Prior indications noted that economic slowing overseas undermined growth for some major ports and large airports, but despite this information, demand for industrial space has been growing consistently throughout the year. An increase in consumer spending on furniture and electronics in particular led to an influx in economic recovery, which shows little sign of slowing down at any point soon.

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Another major trend Burley and Lynn pointed out in their article was that the multifamily commercial investments would still be popular through 2015.  According to the article:

“Multifamily transaction volume has reached pre-recession levels, outstripping office transactions for the first time in ten years, as real estate investment trusts (REITs) and pension funds have fed a fierce appetite for the multifamily sector. The pace is unlikely to slow anytime soon. Apartment demand has been – and is expected to be – robust, supercharged by the shock waves of the recession and by strong demographic trends that are only beginning to manifest,” (Six Trends in Commercial Real Estate to Watch For in 2015).

In addition, cap rates fell back 6 percent in 2014 and most deals took place in large urban markets like LA, New York, and Washington DC.

gary richetelli black-white-city

For further information on Burly and Lynn’s commercial market predictions for the rest of 2015, you can find their article here.

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Why is NYC Real Estate So Expensive?

One of the most wanted cities in terms of real estate is New York, with it’s monumental skyscrapers, beautiful parks, and exquisite cuisine – who wouldn’t want to live in the big apple? But, the problem with having such a high demand for real estate is that prices start rising, and it’s no surprise that real estate in NYC is exponentially increasing when it comes to pricing. In an article published by Business Insider, writer Josh Barro explains many other reasons as to why purchasing real estate in New York is so expensive. Here’s a recap on what he relayed:

First, there is limited space. Remember, New York only has so many square miles of land, especially in Manhattan where buildings are dense. Combine this with the amount of people who want to live in Manhattan from all around the world, and competition increases. When there is more competition, prices rise.Gary Richetelli

Second, there are an abundance of zoning rules that inhibit real estate supply. Barro explains, “Of course, you can get more apartments on a given amount of land by building taller buildings closer together. And compared to most cities, New York is very dense. But it could be even denser,” (Barro, Dear New Yorkers: Here’s Why Your Rent is So Ridiculously High).

Lastly, rent control raises rent prices if you are not rent controlled. This may sound confusing at first, but it’s really quite simple. Tenants that live in rent controlled apartments have incredible deals on their rent and most likely will not be moving out anytime soon, especially since the average rent for available apartments in NYC is more than $3,000. Barro notes, “In Manhattan below 96th Street, 35% of rent regulated apartments are occupied by a tenant who has lived there for more than 20 years. Less than 3% of market-rate tenants have been around that long,” (Barro, Dear New Yorkers: Here’s Why Your Rent is So Ridiculously High). To keep it simple: cheap apartment exist – you just can’t get one.

For more information on the real estate market in New York City and why rent prices are soaring, check out Josh Barro’s article on the Business Insider here.

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Foreign Capital Trends in Commercial Real Estate

gary richetelliThe United States’ commercial real estate market foreign capital income has been significantly increasing lately. In a recent article written by Brian Ward from the National Real Estate Investor’s online data page, the company has been making note on long-term factors that impact
the U.S.’s real estate market as the economy shifts into a recovery mode. Here are some points they noted:

First, foreign investors are making decisions with an informed view of the long-term effects of commercial real estate investments. According to Ward, “As we enter a mature part of the real estate cycle, foreign investors are becoming more conservative with their commercial real estate investments in the U.S.,” (Ward, Five Foreign Capital Trends in the U.S. Commercial Real Estate Market). Though the use of the word “conservative” may sound like foreign investors are becoming less active in the U.S. market, it actually means quite the opposite. The shift from yield driven to capital preservation driven is aiding in debt reduction and investors are recognizing the positive effects of long-term investments. Places in New York like the Waldorf Astoria and the Baccarat hotel are two prime examples of real estate with more equity and long-term appeal.

The next observation Brian Ward made was about new markets in the U.S. becoming increasingly popular. Instead of investors just looking at New York and San Francisco, he writes, “We are seeing foreign investors get much more active in alternative mar

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The Seattle Skyline

kets such as Seattle, Boston, Washington, D.C., Chicago, Dallas, Denver, and Atlanta. This is a function of the basic global challenge in today’s commercial real estate markets,” (Ward, Five Foreign Capital Trends in the U.S. Commercial Real Estate Market).

Lastly, Ward noted the change in technology, lifestyles, and careers. With an increasing desire to invest in commercial real estate market that are associated with technology and biotechnology, cities like Boston, Seattle, and San Jose are being highly regarded by foreign investors. Though New York will still most likely remain at the top of this hierarchy, more and more cities are becoming aware of the desire for various technology businesses.

Ward concludes his article by stating that, “It is truly an exciting time in the U.S. for foreign capital in commercial real estate – all is trending upward,” (Ward, Five Foreign Capital Trends in the U.S. Commercial Real Estate Market).

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Sears’ Selling Strategy

In recent news, Sears Holdings Corps has been selling a portion of its top properties to real-estate trust, Hoffman Estates, and then leasing them back. According to an article written by Angela Chen, published in the Wall Street Journal, this is “a financial step that will let shareholders including Chief Executive Edward S. Lampert buy valuable company real estate,” (Chen, Sears Moves to Raise $2.5 Billion By Selling Real Estate). The retailer for Hoffman Estates, has plans to raise over $2.5 billion from selling over 200 properties that are occupied by Sears and Kmart stores.

sears

This is a huge move in Sears’ commercial real estate because it will reassure suppliers that the value of Sears’ real estate is increasing significantly, regardless of the company’s recent deficits. According to Chen, “Analysts have considered that property to be a central source of value for Sears since the retailer was formed in 2005 through a merger with discount store chain Kmart,” (Chen, Sears Moves to Raise $2.5 Billion By Selling Real Estate).

Most recently, Sears has filed an offering by the Maryland-based trust company, Seritage Growl Properties, stating that Seritage will buy property from Sears and consequently lease is to the retailer. This way, the purchase will be funded by selling stakes to Sears shareholders. Since this recent news, an increasing amount of investors have been buying stocks from Sears. According to Chen, “Mr. Lampert, who along with his hedge fund ESL Investments Inc. owns nearly half of Sears’ stock, said he would buy his allotted stake,” (Chen, Sears Moves to Raise $2.5 Billion By Selling Real Estate).

In addition, Sears has agreed to partner with General Growth Properties Inc., one of the most well-known mall owners in the business. Sears has worked hand-in-hand with General Growth Properties to contribute 12 properties located at various General Growth malls in exchange for “half ownership of the joint venture and $165 million in cash,” (Chen, Sears Moves to Raise $2.5 Billion By Selling Real Estate). Eventually, it has been rumored that Sears will sell its stake in this partnership to Seritage.

Due in part to its recent losses, Sears Holdings Corps is on the rise to sell a majority of its properties, but we may see some turmoil mending along the way as its value in real estate increases significantly. For more information on Sears’ selling of real estate, check out Angela Chen’s article here.

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How to Win Commercial Lease Negotiations

Winning commercial lease negotiations should not be based on how many years of experience you have with winning leases. The truth is that if you have the right skills you will be able to execute a great lease strategy and come out on top. Here are a few things to keep in mind when it comes to negotiating with clients and other business companies:

First, it’s always smart to take a look at the big picture and focus on what you or your company really need. This means thinking about how you use the space, how people access the space, what business units will be needed, and what overall image you want the space to encompass. Ultimately, this tactic focuses on keeping the end in mind before you begin. Always remember how you want the space to be used, especially in terms of serving the needs of employees and customers.

gary richetelli lease pic

According to an article published on REoptimizer.com, “By spending the time and money to analyze what they really want and need, you can select a more suitable site for them and, through them, for your business. Those factors end up determining your space’s size and location and your budget,” (Brucella, 3 Tips for Winning Your Commercial Lease Negotiation).

Next, start sooner rather than later when it comes to finding a great space for your company. According to REoptimizer.com, you should always keep in mind how much time it takes to actually get a new space:

“Getting a new space for your business takes at least a year. In a normal market, it’s best to give yourself 18 months or two years in a recession where new construction space can be hard to find or where financing for purchases or tenant improvement work can be unavailable,” (Brucella, 3 Tips for Winning Your Commercial Lease Negotiation).

The reason it takes so long to move into your space is due to a multitude of reasons, including: construction, build outs, landlords, attorneys, and all the details involved with the negotiation process. Therefore, if you plan ahead, you’ll have more time and not feel so rushed to find a suitable space for your business.

gary checklist

Lastly, be sure to keep records of all official documents throughout this process, doing so will save time and will help you keep track of legal papers and certifications. Keeping updated copies of RFP forms, LOIs, Proposals, Counter-Proposals, and Amendments will not only help speed the buying processes along, but it will show property owners that you are prepared and well-organized. If you’re organized when trying to obtain a new space, you will be rewarded.

For more tips concerning commercial lease negotiations, please take look at this article written by Jason Brucella for REoptimizer.com.

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Invest Wisely in Real Estate

Good tips for making good investments in real estate.