Business Rent Tax

Experts say changes are on the horizon to the decades-old language in retail and restaurant leases as a result of the Covid-19 pandemic.

New leases are being written with substantial changes, particularly in regard to provisions that provide relief for tenants that are unable to fulfill their contract obligations because of circumstances out of their control, such as a natural disaster or pandemic.

Steven Silverman, a shareholder at Miami-based Kluger, Kaplan, Silverman, Katzen & Levine PL, who deals in lease negotiations, said the language in these provisions is often broad, and landlords did not interpret them to apply to shutdowns caused by a pandemic.

“As a result, many new leases signed over the last few months include more specific language,” Jaime Sturgis of Fort Lauderdale-based Native Realty said. “Moving forward, there’s going to be a little more clarity. The provision is broad by design, so I think moving forward more clarity and more specific language addressing these types of situations. landlords and tenants have mostly settled on common ground on what those new clauses may include.”

Most new leases he’s seen include language that states that should there be any government-mandated business closures – whether by city, county, state or federal agencies – the tenant would be protected with partial rent abatement.

“That also protects the landlord, as these agreements often add that the tenant would need to pay a minimum rent to cover costs like property taxes and maintenance,” Sturgis said. “For the most part, everybody’s on the same page about it. People are looking to share the burden.”

Silverman said that while the two sides have found common ground, it was rare for landlords to give any ground on lease negotiations, but the pandemic caused a power swing rare in the industry.

“I believe that bargaining strength is going to change because I think there will be a glut of space on the market,” Silverman said. “When landlords are faced with that reality, they become more relaxed in how they’re going to sell their product.”

Signs of that power swing were apparent almost immediately.

Jenny Gefen, a broker for retailers at Colliers International South Florida’s Miami office, said Bolay was close to signing its lease 2,700 square feet at 810 Brickell Ave. in Miami, but after the pandemic came to South Florida, restaurant representatives requested a review of the language in the lease to protect themselves in case of future government-ordered restrictions or shutdowns.

“Bolay eventually signed the lease after representatives felt they would be covered for pandemic-like situations in the future,” Gefen said. “Many retailers signing new leases are requesting percentage rents for the first couple of years as their businesses recover from the pandemic.”

“Provisions that protect tenants from disasters or pandemics aren’t the only aspects changing in leases because of Covid-19,” said Eric Hochman, chief development officer at Boca Raton-based PEBB Enterprises.

Hochman said his company is working with prospective tenants to include clauses that outline what spaces are available for extra seating, fulfilling curbside and/or delivery orders should government restrictions be enacted again.

 

Source:  SFBJ

Neon - Vacancy 2354

The pandemic is expected to drastically reshape commercial real estate, leaving thousands of vacant and underused spaces nationwide. But some developers and investors are keen to seize the chance to convert those properties into other uses.

Lord & Taylor’s flagship department store in Manhattan, for example, will soon house office workers for Amazon, and a tourist destination in the heart of Hollywood is getting a $100 million face-lift that includes converting underused retail spaces into offices.

“Nobody ever lets a crisis get in the way of creating opportunity,” said Sheila Botting of Avison Young, a commercial real estate services firm in Toronto, where she is president of the professional services practice for the Americas.

Conversion waves in the past were often localized. For instance, more than 13.8 million square feet in lower Manhattan changed over after the Sept. 11 terrorist attacks in 2001, according to the Alliance for Downtown New York. But those shifts were nothing on the scale that is expected in the next 18 to 24 months, experts say.

In retail alone, at least 7,700 stores totaling 115 million square feet were expected to close this year as of early August, according to data provided by CoStar Advisory Services. Most of these closures will be in malls, which were struggling long before the pandemic pushed department stores like JCPenney and Neiman Marcus into bankruptcy.

At the same time, 172.7 million square feet of Class A office space, typically the highest quality, is expected to come online this year and next. Only 59% of it has been leased, below the average of 74%, according to the CoStar data. And nearly 1 in 4 hotels nationwide faces possible foreclosure as owners fall behind at least a month on loans, the American Hotels & Lodging Association said. Simply put, a lot more space is going to be available out there.

“If there was a sudden drop in demand for Cheerios, General Mills would just pull the Cheerios,” said Victor Calanog, head of commercial real estate economics at Moody’s Analytics. “Then there’s going to be less, and prices won’t have to fall as much. But once you’ve built an office building, you can’t exactly take it off the market.”

Some of the causes of the national oversupply in commercial real estate predate the pandemic. For example, the shift to e-commerce has hastened many stores to the grave in recent years — more than 10,200 stores closed in 2019, according to CoStar.

Also, businesses that use offices have been pulling back on space amid rising digitization and other efficiencies as well as demographic shifts — younger generations in general are comfortable with less office space. The commercial real estate industry’s rule of thumb in the 1980s was 200 to 300 square feet per employee, according to Moody’s Analytics. By 2019, the average had fallen to 126.5.

And industries as diverse as real estate, media, technology and banking have been flirting with more telecommuting for decades. Moreover, a sizable chunk of leased space goes largely unused during the workday anyway — estimates place it at 30% to 40% — as people are out of the office for various reasons. But the crisis has created a chance for some developers to reassess their strategy.

“I think for the real estate community, this represents a moment in time to think about current assets, how they’re being used and what future options might be,” Botting said.

The starkest example yet of this approach might be Amazon’s possible plans to convert JCPenney and Sears stores in shopping centers owned by mall operator Simon Property Group into distribution warehouses, which was reported earlier by The Wall Street Journal. The e-commerce giant is also behind the overhaul of the shuttered Lord & Taylor store on Fifth Avenue, turning 676,000 square feet into office space for about 2,000 employees by 2023. Amazon declined to comment for this article.

Last month, DJM Capital Partners, a real estate services firm, and private equity firm Gaw Capital Partners revealed plans to overhaul the Hollywood & Highland, a Hollywood entertainment complex on the same block as the Dolby Theater, which hosts the Academy Awards. Those plans call for carving nearly 100,000 square feet of creative office space out of existing retail.

“When the firms bought the complex last year, they had a low opinion of the future of traditional brick-and-mortar retail,” said Stenn Parton, chief retail officer of DJM. “Then the coronavirus shut down thousands of businesses across the country. If anything, I think it’s solidified our business plan as we’ve seen the record store closures as a result of the pandemic.”

Most conversions won’t be as grand; instead, they’ll involve smaller and less heralded properties. Still, a wide variety of conversion projects is expected.

“Developers see an opportunity in converting hotels into continuing care retirement communities,” said David Reis, chief executive of Senior Care Development in Harrison, New York. “It’s less expensive to convert a property than build from the ground up, especially in expensive markets such as New York. If you can buy space for the equivalent of 50 cents on the dollar less than new construction, then clearly you’re going to be fine when you do a conversion.”

Nationally, new residential construction generally average $225 to $350 a square foot, compared with $150 to $200 for an office-to-residential conversion, according to a report provided by project management firm Cumming. For industrial construction, the average new project costs $125 to $250 a square foot, but that can fall to $75 to $175 for a retail-to-industrial switch.

Despite the potential for lower costs and the emerging universe of options, commercial real estate conversions do pose challenges. Zoning and technical design can stymie some changeovers. And it can be more difficult to draw financing for conversions during the pandemic, when lenders are more averse to risk.

“Core and stabilized assets are drawing financing opportunities,” said Eric Rosenthal, a co-founder of Machine Investment Group, a real estate investment firm. “Transition stories, or when there’s an element of execution beyond just buying it and managing the property, the environment to finance those assets is very challenging.”

Traditionally, the best conversions have increasingly been obsolete properties.

“Typically, if they’re older and they’ve gone beyond their useful life — reduced occupancy, reduced cash flow — they are ripe for transformation,” Botting of Avison Young said.

In an undated image from Related Companies, a rendering of what an office conversion could look like in the Neiman Marcus space at Hudson Yards in New York. (IMAGE CREDIT: Related Companies via The New York Times)

But even newer properties are on the table. Neiman Marcus opened a 188,000-square-foot flagship store at Manhattan’s Hudson Yards just last year as the anchor retail tenant in the nation’s largest private real estate development. Now the Related Cos., owner of Hudson Yards, is pivoting. Philippe Visser, president of Related Office Development, said by email that the store would become “the most exciting office opportunity in New York City.”

The move harks to previous crises that forced a metamorphosis in commercial real estate. In the 1990s, lower Manhattan was racked by high office vacancies and population drain, and William C. Rudin, president of New York landlord Rudin Management, helped lead efforts to rejuvenate the area. More than 4.6 million square feet was converted from 1995 to 2001 — including glassy office buildings no one thought would make decent apartments.

“When things get bad enough,” Rudin said, “it forces people to come together and come up with ideas.”

 

Source: SFBJ

boynton beach mall

What is going to happen to America’s dead malls? That’s a million-dollar question plaguing retailers and real estate developers.

With a report circulating earlier this month that the biggest U.S. mall owner Simon Property Group has been in talks with Amazon to convert some shuttered Sears and J.C. Penney department stores into fulfillment centers, many industry analysts have been pontificating on the future of malls as logistics hubs.

The consensus seems to be that turning old retail space into new warehouses might not be so easy, even though it might seem like a logical solution. Demand for logistics buildings is skyrocketing as e-commerce sales balloon. But the hurdles include the need to have properties rezoned, which could be met with pushback from local municipalities.

“Just because retail space has gone vacant or remained fallow does not mean that it is automatically a good candidate for repurposing into industrial space,” the head of Moody’s Analytics commercial real estate economics division, Victor Calanog, said in a report just released. “One cannot simply build industrial buildings in areas zoned for commercial use. Often, that requires rezoning areas — a long and tedious process with a low probability of success. State and local governments typically tax industrial properties at anywhere from half to two-thirds the rate of commercial properties, so municipalities have little incentive to rezone areas from commercial to industrial use, as they will collect less tax revenues.”

Demand for various commercial real estate asset types is expected to shift noticeably because of the coronavirus pandemic, with more people now working from home, flocking to the suburbs for space and buying online things they used to browse for in stores.

According to data pulled by Moody’s Analytics REIS, apartment development in the U.S. is expected to be down 15.6% in a post-Covid-19 world. Office development is set to drop 10%, it said, while retail falls 15.7%. Industrial development, meantime, is expected to pick up 3.6%.

The firm did find five markets where it said it would make the most sense to covert vacant retail space into warehouse space, based on where retail has been underperforming and where warehouse demand is hot. Those are: Central New Jersey, Northern New Jersey, Long Island, Memphis and Detroit.

But shopping malls are likely going to be shuttering in suburbs all across the country, as store closures grow in number and landlords capitulate. Another new report out this week from Coresight Research estimates 25% of America’s roughly 1,000 malls will close over the next three to five years, with the pandemic accelerating a demise that was already underway before the new virus emerged.

The malls most at risk of going dark are classified as so-called B-, C- and D-rated malls, meaning they bring in fewer sales per square foot than an A mall. An A++ mall could bring in as much as $1,000 in sales per square foot, for example, while a C+ mall does about $320. There are roughly 380 C- and D-rated malls in the U.S., according to an analysis by the commercial real estate firm Green Street Advisors. It has said malls rated C and below “are not viable retail centers long term.”

CBL & Associates, a Tennessee-based mall owner that has a number of B- and C-rated malls in its portfolio, has said it plans to file for bankruptcy by Oct. 1, highlighting just how much pressure these landlords are facing. Even high-end malls are under pressure, though. No one is really immune. An upscale mall owner in Miami, Bal Harbour Shops, is currently moving to evict the luxury department store chain Saks Fifth Avenue for not paying rent since mid-March. It owes Bal Harbour roughly $1.9 million, according to court documents.

“Despite being given months to honor its past due rental obligations and despite Saks’ impressive post-COVID sales at Bal Harbour Shops, Saks steadfastly refused to make any effort to pay any part of its rent,” Bal Harbour Shops President and Chief Executive Matthew Whitman Lazenby said in a statement. “Bal Harbour Shops has worked tirelessly to ensure our business and our tenants can survive and thrive in this environment. Regrettably, this injudicious behavior has left us with no other option than to terminate the Saks lease and sue to evict Saks from Bal Harbour Shops.”

A representative from Hudson’s Bay-owned Saks was not immediately available to comment.

About 90% of occupants in U.S. malls are either experiential tenants like movie theaters, or department store chains and apparel retailers, according to the Coresight analysis. This makes malls the most vulnerable type of shopping centers to the Covid-19 impact, it said, compared with other properties like strip centers that have grocery stores and outlet centers that offer consumers bargains.

During the pandemic, movie theaters and clothing shops have faced long windows of being closed, while consumers could still flock to strip centers for food, cleaning products and other essentials. In some states, such as New York and California, movie theaters remain closed to this day. And so with minimal revenue coming in, these are the businesses that are most likely requesting rent reductions, or not paying rent at all.

Mall developers had up until now been courting entertainment companies like Dave & Buster’s and iFly indoor skydiving, and restaurants like Cheesecake Factory, to lessen their dependence on shrinking retailers. But those businesses have also not fared well in an age of social distancing.

So, if not warehouses and entertainment complexes, analysts have pondered other potential use cases for so-called dead malls: Churches, medical facilities, office spaces and even apartment complexes.

But even office space is a risky bet now, as the working-from-home trend could become permanent for some. Workers in JPMorgan Chase’s corporate and investment bank, for example, will cycle between days spent at the office and at home, keeping the ability to work remotely on a part-time basis. The world’s biggest Wall Street bank by revenue has said it could shutter backup trading floors located outside New York and London as a result of the move.

The outdoor retailer REI is also looking to sell its recently completed corporate campus in suburban Seattle, shifting instead to more satellite offices, as a result of the pandemic.

“Unfortunately, this whole Covid thing has thrown the experiential pitch out the window,” Moody’s Calanog said in a phone interview. “Until we resolve this pandemic, I suspect we are going to be in a holding pattern with hollow retail space. Then we will see what the most viable format is.”

View the CNBC news video ‘How Shrinking the American Mall Will Impact Local Tax Revenue‘ below.

Source: CNBC

46089472 - cash dollars lying on the plane.

Industrial prices could set to increase as a result of increased activity and rents during the pandemic.

According to a recent survey from RCM/LightBox, industrial players expect rents to increase from 4% to 7%. The asset class has already proven to be resilient during the worst months of the pandemic. As a result, many investors have flocked to the asset class.

“Experts in the industry—brokers, investors and developers—shared with us their expectations that by the end of the year we’d see pricing and rents increasing from 4-7 percent. Those expectations were expressed for many primary and a number of secondary markets, in key population areas, across the country,” Tina Lichens, SVP of broker operations at LightBox, tells GlobeSt.com.

Not all industrial assets are created equal. Manufacturing, for example, has not performed well during the pandemic. Investors as focused on ecommerce-related uses, pharmaceutical-related uses and any industrial supporting essential uses.

“Among the industrial properties to watch are those tied to consumer goods, pharmaceuticals, and other essential services, along with last mile facilities that support growing population bases with quick delivery options,” says Lichens. “Not to be overlooked are mission critical facilities, such as data centers and corporate food products facilities. Data centers, for example, have become increasingly important because so many people are working from home.”

Manufacturing and outdated industrial—which could pose a higher risk in a down market—are the least popular.

“Those subcategories that face the greatest exposure could be older, obsolete facilities along with smaller multi-tenant facilities, particularly those not in strong and established metro corridors,” says Lichens. “Given some of the uncertainties that exist in the overall economy, particularly for small businesses, it may be difficult to underwrite the acquisition of these facilities without predictable cash flow.”

The increased demand for ecommerce and the expectation of increased pricing has created enthusiasm for the asset class, but Lichens says that there is no reason to think that investors are being overly positive.

“Various reports point to growing consumer demand for online shopping and significant increases in store and online activity from Target, Walmart and others. Even before the pandemic, the experts pointed to the increase in ecommerce activity as reason to be bullish on the industrial market,” Lichens says. “The pandemic has truly emphasized our reliance on ecommerce and caused certain areas to experience tremendous growth. With more people in the U.S. accustom to and now embracing ecommerce, it has become a new way of life that has changed our entire consumer culture. It is difficult to envision a shift in the other direction.”

 

Source: GlobeSt.

As shopping centre and high street landlords survey the wreckage left by coronavirus, warehouse owners are facing a different problem: how to deal with record demand.

The pandemic has pushed more consumers online, prompting a rush for warehouse space, from small “last-mile” delivery sites near city centres to cavernous “big-box” distribution centres

Amazon has led the charge. The company, which has added an eye-watering $600bn to its market capitalisation this year as sales have jumped, is inking lease agreements on mammoth warehouses around the world. It has committed to opening 33 “fulfilment centres” in the US this year, an additional 35m square feet spread from Atlanta to Arizona.

The US ecommerce giant is also the incoming tenant of a 2.3m square foot warehouse on London’s outskirts, according to people with knowledge of that deal. Amazon’s sprawling expansion is one reason why investors are sensing opportunity.

The take-up of UK logistics space hit record levels in the second quarter of the year, according to property group CBRE — despite the lockdown.

“Following a quiet few months after coronavirus hit, investors are back with a vengeance”, said David Sleath, chief executive of Segro, the dominant logistics company in the UK and a sizeable participant in Europe which last week said it had lifted first-half profit. “If you are a global institutional investor and you want exposure to commercial real estate, this is an attractive place to be.”

A decade ago, ecommerce accounted for 6.7 per cent of all retail sales in the UK, according to the Office for National Statistics. By February, the month before the outbreak, the figure was 19 per cent. By May it had hit 33 per cent. In April, 27 per cent of purchases were made online in the US, according to the commerce department and Bank of America.

Until recently, the most desirable property to own was a traditional mall. Malls had a natural moat, being difficult to develop and serving a catchment area

“That share was likely to diminish as stores reopened,” cautioned Mr Sleath, “but incoming tenants were looking to crystallise that temporary spike into increased capacity”.

“There’s a wall of cash coming into our sector,” said Marcus de Minckwitz, an investment adviser on European logistics at Savills property.

Every extra £1bn spent online means the addition of almost 900,000 square feet of logistics space, according to CBRE. New York-listed Prologis, the world’s largest warehouse company, estimates that 1.2m sq ft of space is needed for every $1bn in ecommerce sales in the US.

Gains from ecommerce tenants far outweigh the losses from bricks-and-mortar retailers, according to CBRE, one reason why Blackstone, the world’s largest private property owner, has described logistics as its “highest conviction” sector.

“Until recently, the most desirable property to own was a traditional mall. Malls had a natural moat, being difficult to develop and serving a catchment area . . . Logistics for a long time was viewed as the other end of the spectrum: not so exciting and more easily replicable,” said Ken Caplan, global co-head of Blackstone Real Estate. The rise of ecommerce had shifted that whole dynamic.”

In June 2010, Segro’s market capitalisation was less than £2bn, according to data from S&P Global. Now at £11.8bn, it is comfortably the UK’s largest listed property group; UK shopping centre owner Intu, meanwhile, has collapsed. The value of US peer Prologis has climbed a fifth this year to roughly $77.5bn.

Dozens of shopping centres in the US are being turned into industrial sites, according to CBRE, which says Covid-19 will accelerate the trend. This week, the Wall Street Journal reported that Amazon was in talks with mall owner Simon Property to repurpose department stores as distribution hubs.

Thanks to the ecommerce boom, CBRE predicts there will be demand for 333m sq ft of new space in the US by 2022 — treble its previous estimate — and expects rents to grow by about 6 per cent a year. Amazon is not the only eager tenant. Fashion retailers with a limited online presence have desperately sought space to park stock they could not shift in the pandemic.

“They already have warehouses full of clothes, then next season’s come in and they can’t stack it,” according to one UK property agent.

“But while some warehouse owners had suffered hits to rental income from retail tenants in particular, investors bidding for new sites were achieving few discounts,” said Mr de Minckwitz.

“Some indiscriminate investors were likely to get caught out, warned Mr Sleath. “There will be more retail fatalities, that will mean empty warehousing as well as shopping centres. It’s very important to think about where you place your money.”

Asset manager PGIM bought five German logistics sites last month and said it was optimistic that demand would only grow. Private equity firms are piling in too: as well as Blackstone, Meyer Bergman plans to raise €750m to invest in Europe.

“Investors needing long and strong sources of income, such as sovereign wealth funds and European pension funds, were also attracted by the sector,” said James Dunlop, a fund manager at Tritax Big Box.

“But some might come unstuck,” cautioned Adrian Benedict, head of real estate solutions at Fidelity. “There’s a flood of capital from retail to logistics. Inevitably, with every crisis, you see those poorly considered deals at the end of the cycle are the ones you really regret.”

 

 

Source: SFBJ

3900 Coral Ridge Drive

Tom Robertson and Michael Rauch and, Senior Managing Partners with Boca Raton-based Rauch Robertson Commercial Realty Advisors, negotiated the sale of an ±81,000-square-foot investment-grade industrial asset located within the Corporate Park of Coral Springs.

The deal closed June 30.

Rauch and Robertson represented the Seller, a Manhattan-based commercial real estate developer and investment group, in the sale of the property, which is located at 3900 Coral Ridge Drive in Coral Springs, Florida. Built in the 1970’s by the Westinghouse Corporation, the property has been a multi-tenant facility and is currently occupied by a national medical manufacturing firm and a specialty glass manufacturer.

Elion Partners is a nationally recognized private investment firm with substantial holdings throughout Florida and the United States.

The property traded for $7,150,000 and is well-suited for light manufacturing uses. The building is situated on ±6 acres, is generator served and includes dock high loading.

“Industrial manufacturing facilities with large footprints are becoming harder to source in the South Florida market as high-cube distribution facility development continues to dominate,” Rauch commented.

RRCRA is currently working with several buyers looking for 10,000 – 40,000 SF industrial buildings in Broward and Palm Beach County.

The brokerage company is also seeking leasing and investment sales professionals for its growing commercial real estate expansion in Miami-Dade, Broward and Palm Beach counties. Multiple positions are available within these and other Florida markets, which offer a unique ground floor career opportunity to work closely with the firms Founder’s Tom Robertson and Michael Rauch to move their vision for the RRCRA brand forward. Commission and benefits are commensurate with experience. A Florida Real Estate License and Commercial Real Estate experience are required. Only qualified candidates should apply by forwarding resumes to mail@crefloridapartners.com.

 

Rauch Robertson & Co. Senior Vice President Dan Casey, CCIM represented the seller in the sale of a 12,184-square-foot office/warehouse facility located at 1358 E. Newport Center Drive in Deerfield Beach.

The building traded at $2,314,960 or $190 per square foot, marking the highest negotiated price per square foot for an industrial property in Newport Center and the firm’s second record breaking sale in the park in the past five months.

1358 W Newport Center Dr-front

In November 2019, Managing Partners Michael Rauch and Tom Robertson represented the seller in the sale of a 15,268-square-foot office/showroom/warehouse facility within the park. The building traded at $2,800,000, or $183 per square foot.

Newport Center is a large, master-planned professional business park located 5 minutes from Interstate I-95, just south of SW 10th Street, with easy access to the Sawgrass Expressway.  The park features two hotels, a daycare center, and is home to many notable businesses including JPMorgan Chase, Hoerbiger Compressor Technology, Quest Diagnostics, Sandvik Corporation, HYLA USA, and the Mapei Corporation.

“Businesses recognize the convenience and prestige that a Newport Center address provides, and this is why we’re seeing property values continue to rise,” explained Casey.

Rauch, Robertson & Co. is seeking leasing and investment sales professionals for its growing commercial real estate expansion in Miami-Dade, Broward and Palm Beach counties. Multiple positions are available within these and other Florida markets that offer a unique ground floor career opportunity to work closely with the firm’s Founders Tom Robertson and Michael Rauch to move their vision for the brand forward. Commission and benefits are commensurate with experience. A Florida Real Estate License and Commercial Real Estate experience are required. Only qualified candidates should apply by forwarding resumes to mail@crefloridapartners.com.

 

Broward College wants to work with developers to build a commercial project on 15.5 acres of its Davie campus.

The college issued an Invitation to Negotiate (ITN) with private parties on April 17. The deadline to respond is May 29.

The available property is at the southeast corner of its campus along Davie Road, including Seahawk Lake and several parking lots. A deal would require approval of the college’s Board of Trustees. Development could take place as early as 2021.

“Real estate partnerships are certainly not new to us,” said Broward College President Gregory A. Haile. “In recent years, we have looked to partner with the private sector to leverage college assets, and thus reduce our reliance on tax payer funding. Resources derived by this enterprising model will serve to enhance the lives of our students and our contributions to the Broward County community.”

The ITN doesn’t include a requirement that the development on the BC campus include an educational component. It states the responses will be evaluated based on the experience of the developers and the project’s ability to “maximize the college’s financial return.” It also says enhancing the “student/faculty experience” on campus will be a factor.

BC has over 27,000 students on that 150-acre campus, which is near campuses for Nova Southeastern University and Florida Atlantic University.

Seahawk Lake could be relocated as part of a new stormwater master plan BC could work on with the developer, according to the ITN.

In addition to the 15.5-acre development site, proposals in the ITN could include the redevelopment of BC Buildings 1 and 2 and a test track used by law enforcement, according to BC. There is a significant amount of deferred maintenance on those buildings and the college would not need to replace them. However, it would probably need to relocate the test track.

“We look forward to the development opportunities this endeavor can offer,” said Broward College Board Chair Gloria Fernandez. “In addition to improved infrastructure, it will help us generate revenue to offset costs, keep tuition affordable, and prioritize student success initiatives.”

Zaida Riollano is BC’s point of contact for ITN submissions.

Several years ago, BC approved a similar deal with Stiles Corp. to build a mixed-use tower on its downtown Fort Lauderdale campus.

 

Source: SFBJ

questions

COVID-19 deepens its hold on cities around the country, the question is increasingly becoming when it will peak in each city and for how long?

By now, U.S. cases have risen to top 600,000 despite a recent plateauing of cases in some areas. Even once the worst of it is officially behind us, we may continue to see the virus pop up here and there, menacing populations that may have thought they were safe.

One commercial real estate professional we spoke to, an asset manager at a major real estate investment firm, is conservative and practical in her recovery expectations. She said in a conference call that “if we shed 10 million jobs in March, we have never created more than 200 thousand jobs in a month. Even if we double that, it will take a lot of time to recover.”

Even after that recovery eventually, inexorably occurs, though, what will the world look like? We keep talking about a return to the way things were, but is that even within the realm of possibility? Or will this period of disruption be so destabilizing to our systems that it will completely change our social, economic and political norms?

While recovery may still be a long way off, it is not too early to estimate the impacts of the crisis on the activity within the commercial real estate industry. That’s why propmoda recently conducted an in-depth survey, in which we collected responses from industry professionals across the country and the world, working in fields from development to architecture to brokerage across a diverse range of property types. The resulting deep-dive report, The Commercial Real Estate Industry’s Reaction to the COVID-19 Threat, uncovered responses and sentiment about the affects of the pandemic on the industry.

Many respondents chimed in commenting on a need for a moratorium on commercial mortgages, and others just pointed to the dire need for an effective treatment or vaccine. One respondent, a leader at an office landlord in Turkey, said that “I don’t think the commercial real estate industry will recover to pre-crisis levels since both employers and employees will be accustomed to new business processes which make use of less office time. People will not change their habits.” So what kind of habits will change?

Will remote work become more commonplace now that we have all started growing accustomed to it? By the time this pandemic ends, all of us will have had a crash course in Zoom video conferencing. What about the way we cluster on city streets, take public transit, or shop at the grocery store? In many ways, COVID-19 seems to be shining a light on trends that were already bubbling under the surface. Online shopping for groceries, for instance, was already growing, by as much as 35 million U.S. consumers between 2018 and 2019.

Twenty three percent of our survey respondents said that they would be using remote working arrangements more, after the COVID-19 outbreak. We are not alone in picking out this trend. In another recent study of 317 CFO-type professionals, Gartner found that almost three quarters of finance leaders will be increasing the number of remote workers within their organizations by at least 5%. Not only that, but their survey also found that 4% of respondents would be transitioning fully half their company’s staff members to a permanently remote plan. 17% of respondents said they’d be sending 20% of their workers home. These numbers could be disastrous to the office market.

Beyond just office space use, COVID-19 is opening up entirely new questions that point to the very heart of the real estate industry. How will retail landlords survive when their tenants cannot welcome shoppers into their stores? How will industrial owners keep their warehouses humming with activity when huge numbers of non-essential goods aren’t being sold? How will apartment landlords respond when their residents can’t pay rent, but regulations prevent them from evicting non-paying tenants? According to the NMHC, April rent payments are down only 7% from March, before the worst of the outbreak came to the country, but that’s just one month. What happens next?

Social distancing is something that will likely come to an end, whether it is in two months or a year and a half. Hopefully, we can end it sooner than later, but the memories of the danger present in close human contact will likely stay fresh for a long time. The economy may get its engine running and wheels turning late this year or some time next year. But will it even be the same kind of car?

 

Source: propmoda

silver lining

The COVID-19 outbreak and widespread response to slow its spread has thrown cold water on what had been a healthy U.S. economy. Nearly all sectors, including real estate, has seen immediate impacts.

Even so, those in the Milwaukee-area commercial real estate industry see a number of opportunities coming as a result of the pandemic. Opportunities will come in the form of buying opportunities, a healthy industrial sector through growth in e-commerce and repatriation of supply chains, remote-work related investments and more lease and expansion opportunities due to newly vacated space.

These musings from local real-estate professionals were compiled in a recent survey conducted by six area industry groups: Marquette University Center for Real Estate, NAIOP Wisconsin, the Commercial Association of Realtors Wisconsin, Wisconsin CREW, Building Owners & Managers Association of Wisconsin and IREM Milwaukee. The survey asked respondents what impacts they were seeing from the outbreak and what strategies they were using to address them. It generated nearly 350 responses. The full results were released last week.

One of the most commonly mentioned things is the rise of buying opportunities, due to variables including low interest rates, distressed assets, foreclosures, increasing supply and lower property values.

As one respondent noted, opportunity could lie in “potential distressed sellers looking to recapitalize or sell at a discount to replacement cost and prior value.”

Respondents also noted two opportunities in the realm of industrial real estate. Some predicted accelerated growth in the e-commerce sector as more people become comfortable with using home-delivery services. Others noted that supply chains could be re-focused domestically, as the outbreak caused global disruptions. The thought is that the industry would be better equipped to handle a similar pandemic in the future if more operations were located in the U.S.

“Manufacturing growth in U.S. as more companies repatriate their supply chains,” wrote one respondent.

They also noted several opportunities in the retail sector. More space will be made available due to businesses closing, which will create opportunities for tenants to relocate or expand. Landlords will also settle for lower rental rates as they look to make deals with replacement tenants.

This all could be viewed as a silver lining, since retail has been hit particularly hard due to state and local shutdown orders.

” … I believe some businesses will not be able to reopen or will fail, that more retail space will become available, and that asking rents will come down as landlords look to do deals with good replacement tenants,” said a respondent.

Builders noted opportunities to do more renovation work on buildings that are now vacant or have limited occupancy. They also predicted more demand coming from the health care sector, with users looking to upgrade facilities. On the other hand, a number of respondents suggested the rise in virtual health care could also harm their business due to less need for services at brick-and-mortar locations.

Many respondents pointed out that many companies have had to quickly adapt to remote work. This would have long-term impacts on the way people work, they said.

Things traditionally done in-person that are now being done virtually include team meetings, property showings and remote notarization.

Several even suggested this would lead to changes in the office market, such as the reduction of needed office space.

This particular point caught the attention of Andrew Hunt, director of the Marquette University Center for Real Estate, one of the groups involved in the survey.

He said respondents were surprised how easily and quickly their firms adjusted to remote-work tools such as Zoom and Microsoft Teams. Many of them wondered how this would change the way people work, both inside and away from the office, even after the outbreak subsides.

“I think what they’re trying to say is, ‘We know that there’s a way people work, we think it is probably likely to change from this,’” Hunt said in a recent interview.

He later added, “How that impacts office space in the future, how that impacts just the way people do work and maybe even how efficient they are in doing work, is something that we all need to continue to watch. But a lot of people think that is going to have an impact.”

Other takeaways from the survey include:

 

Source:  BizTimes

uncharted waters

It is reasonable to presume that no South Florida business will emerge entirely unaffected by the pandemic and subsequent economic downturn.

As companies figure out how to get back on their feet, commercial real estate brokers and property managers are helping them adapt to the possibility of staff reductions and structural changes to their businesses. The big picture will be a mixed bag of positives and negatives for owners, investors and tenants.

On the positive side for owners, low-interest rates will mean an attractive environment for refinancing quality loans. For domestic and international investors who still consider America the world’s safest place to invest, the time will be right to return to the market in search of new buying opportunities. Tenants who are hit hard by months of interruption and serious revenue shortfalls will scrap plans to expand.

The commercial real estate sector as a whole is navigating this evolving crisis through uncharted waters. Tenants have reached out to us to report the early impact of the coronavirus, or COVID-19, on their businesses. We are sympathetic to the economic uncertainty they are facing and are pointing them toward the various federal, state and local programs being deployed to help businesses recover.

Facing immediate fiscal challenges, landlords are not in a position to extend financial relief. Some are offering hope that when the crisis ends a comprehensive review of tenants’ circumstances can be performed and a response provided in due course.

We also are urging tenants to examine their own resources, including the terms of their insurance policies. For example, if coronavirus losses are sufficient to trigger business interruption coverage according to the terms of their policy, some tenants may be covered for income losses resulting from disruption of their operations.

No one knows the timeline for recovery, so until the pandemic is under control and the economy recalibrates, my staff and I are focusing on the things we can control. We moved rapidly to transition our firm to remote mode and are proactively taking the following steps to keep our team engaged and our customers reassured:

  • As the pandemic became imminent, we fast-tracked the companywide installation, training and roll-out of stay-at-home technologies. It was a substantial investment, but well worth the long-term benefits it will deliver to our business. We also made sure everyone had a laptop and video conferencing capabilities, and adapted our phone system for the seamless offsite handling of calls.
  • We hold mandatory virtual staff meetings every day to talk shop, share news, observations and suggestions. We challenge everyone to present fresh ideas to benefit our company, our clients and our community. In addition, for as long as the health authorities permit, two people per day go to the office to support the stay-at-home team by forwarding mail and other documents, as needed.
  • Each of us stays in touch with clients to share updates and assure them that we are taking care of everything in our power on their behalf. We visit their properties to make sure they are being properly maintained, and although we no longer can go inside tenant spaces, we make sure everything is being maintained as planned on the outside.
  • Working from home can offer quiet periods during the day to sit and think about what we can be doing differently. We are encouraging our brokers, property managers and administrative staff to carve out time every day to think about challenges and opportunities for moving our business forward and ultimately making it more successful than ever before.
  • Several members of our staff are using this time to hone their skills with online training
  • Most of us have that folder full of miscellaneous notes that might be useful someday but never make it out of the pile. With some extra time temporarily on our hands, most of us are getting more organized, filing all those business cards we’ve collected or reading those industry articles we’ve meant to read for months. It’s time well spent.

Instead of wasting precious time worrying about how and when the commercial real estate market is going to recover from the impact of COVID-19, we are preparing to hit the ground running when it does.

 

Source: SunSentinel

big box retail

Across FloridaSeritage Growth Properties, the publicly traded Sears REIT, has been working quickly to repurpose old Sears and Kmart stores since the department store retailer went bankrupt in 2018 and closed more than 100 stores in the U.S.

A year ago, the firm transformed an 88,400-square-foot Hialeah Kmart into a shopping plaza featuring Bed, Bath & Beyond, Ross Dress for Less and dd’s Discount. Nearby, the company plans to convert a recently shuttered Sears store and auto center at the Westfield Mall into a movie theater and retail spaces that will house Ulta Beauty, Five Below and Panera Bread. In Gainesville, Seritage redeveloped another Kmart store, totaling 139,100 square feet, into an office building for the Florida Clinical Practice Association and the University of Florida College of Medicine.

The strategy is paying off. According to Seritage’s Q4 2019 quarterly report, the firm is collecting new national retail rents averaging $20.35 a square foot compared to $7.51 a square foot that was being paid by Sears and Kmart. In Miami-Dade County, average asking retail rents were $38.18 per square foot in Q4 2019, up from $34.81 during the same period in 2018, according to Colliers International. Seritage also increased the share of non-Sears tenants from 54.3 percent in 2018 to 83.3 percent last year.

The demise of Sears, Kmart, Sports Authority, Toys ‘R’ Us and other major department store retailers in recent years jolted big box landlords in South Florida and across the country. To fill their empty massive stores, some property owners have followed Seritage’s formula of splitting up a big box to attract discount apparel companies such as Ross and Burlington, which do not need as much space as a traditional department store. Others have been lucky enough to fill entire stores by luring grocery chains like Sprout and furniture retailers like At Home.

Seritage and all other landlords are taking advantage of what were low rents from Sears and Kmarts and creating a value-add opportunity by leasing to higher paying tenants,” Alan Esquenazi of Colliers International said.

Infill ideas

A few landlords, such as shopping center developer Raanan Katz, are planning ambitious mixed-use projects on former big box sites. Katz’s company RK Centers wants to transform the site of a Sears building in Fort Lauderdale into a massive development that would have four towers with 854 residential units, a 192-room hotel, 11,065 square feet for restaurants, cafes and a food hall and 86,990 square feet for retail, office and art gallery spaces. In the city’s burgeoning Flagler Village neighborhood, the proposed project was first presented at a Fort Lauderdale design review committee meeting in January.

In Lantana, a small town in Palm Beach County, Miami-based builder Saglo Development Corp. wants to redevelop a Kmart on an 18.6-acre site on Hypoluxo Road and South Dixie Highway into an apartment complex. A preliminary plan shows five four-story residential buildings with 209 units, a clubhouse, pool and 508 parking spaces. In January, the Lantana Town Council voted to approve a land use map change for the property from commercial to mixed-use.

Shopping centers formerly anchored by big box stores are usually well located in the heart of mostly residential areas with strong traffic counts, good access and ample parking,” said Nick Banks, a principal and managing director with Avison YoungThis makes malls excellent candidates for redevelopment for other uses. Multifamily options in these projects help bring residents to the doorstep of remaining retailers. Furthermore, cities are in favor of infill development like this as the pathway to achieving increased density.”

Despite vacancies caused by national chains faltering, big box retail is stable overall in South Florida,” Colliers’ Esquenazi said. In certain markets, I have a lot of new vacancies and rental rates are going down. That is not the case in Florida. We had a solid year. Rental rates are better than we’ve had in three years.”

According to a Colliers International Q4 2019 report, the vacancy rate for big box retail stores in South Florida is below 5 percent with properties in Miami-Dade faring slightly better than those in Broward (see chart on page 30).

“There’s a perception that landlords are not finding new tenants because big box stores will remain vacant for long periods of time even when there are signed leases,” Esquenazi said. It takes about a year to fill the space. But it’s not due to a lack of demand. The negotiations, getting letters of intent, signing the lease, obtaining permits and starting construction takes a number of months to complete.”

Esquenazi said his practice specializes in big box stores and represents chains, such as Target, Kohl’s and 24-Hour Fitness, among many others that are adding new locations in South Florida. Dick’s Sporting Goods, for instance, took over shuttered Sports Authority stores in at least five South Florida locations, including Sawgrass Mills Mall, Midtown Miami, Dadeland Station and Aventura.

Obviously, Dick’s knew where Sports Authority’s best stores were and jumped on them,” Esquenazi said. “Dick’s is one example of expanding retailers. Then you have your off-price retailers like TJ Maxx, Burlington, Ross and Marshalls that remain strong.”

Supermarket Rescue

Grocers are another hot category that helps boost big box-anchored shopping centers,” said Ian Weiner, president and CEO of Pebb Enterprises, a Boca Raton-based commercial real estate investment firm. It took nearly two years to land the right tenant to fill a large chunk of a 42,000-square-foot store that housed a Sports Authority at the Shoppes at Isla Verde in Wellington. Rather than replacing it with any big box, we were looking for a tenant that could change the dynamics of the shopping center. In today’s environment retailers are also being extra cautious in making decisions. Quick deals are not easy to come by.”

In July 2018, Pebb announced Sprouts, a fast-growing grocery chain offering fresh, natural and organic products, was opening its first South Florida location, taking 30,000 square feet in the former Sports Authority space. A month later, Pebb sold the Shoppes at Isla Verde — which has a Best Buy, Ulta Beauty, and Petco — to MetLife Investment Management for $73.75 million. Pebb still handles leasing and property management for the 207,030-square-foot outdoor shopping center.

Adding Sprouts increased the value of the shopping center,” Weiner said. “It adds a lot more foot traffic having a grocer versus a Sports Authority, and the investor pool is a lot better for grocery store-anchored shopping centers.”

Last year, Pebb was also able to find a large tenant to fill an 126,000-square-foot big box store that was once occupied by Gander Mountain, an outdoor apparel company that filed for bankruptcy in 2018, after liquidating merchandise, laying off employees and closing 30 to 40 stores. The home décor superstore At Home signed a 10-year lease and opened its doors last May. Pebb bought the 13-acre Gander Mountain site in April 2018 for $2.6 million.

We bought it knowing we had potential options like splitting it up or doing an alternative use like industrial,” Weiner said. “But splitting up a big box space is very costly to do. So the best solution is to get a tenant that can absorb the entire space. Each project varies, but it can cost $50 to $100 a square foot to reconfigure a big box for smaller tenants.

The benefit of splitting a big box store is that a landlord can charge a higher rate per square foot for smaller spaces, said Claudio Mekler, CEO of Miami Manager, a commercial real estate firm based in Sunrise. A Sears Home vacated a nearly 5,000 square foot space at the Miami Manager-owned Village Shoppes of Coconut Creek in June 2017. Belfort Gym, a tenant at another Miami Manager property totalling 5,963 square feet, was looking to downsize its space by half.

Mekler said he convinced the gym owners to take half of the space in the former Sears Home store. He then leased Belfort’s old space to another existing tenant, Salon 360, that wanted to expand its square footage.

Between Belfort and Salon 360, Miami Manager increased its income at these two properties by almost 32 percent compared to the income generated by the old Sears lease,” Mekler said. “Although the other half of the Sears space consisting of 2,338 square is still vacant, we know with the aggressive approach it will be leased shortly.”

 

Source: The Real Deal