Tag Archive for: covid-19 pandemic impact

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A little chest thumping never hurt anybody — especially when business is sizzling during inflationary times.

The economic development agency for Palm Beach County made a splash in Times Square in New York City with some targeted advertising. (PHOTO CREDIT: Business Development Board of Palm Beach CountY)

In a case of “strike while the iron is hot,” or perhaps before it turns cold, the Business Development Board of Palm Beach County just took its decade-old “Wall Street South” campaign to midtown Manhattan with the purchase of one-day ads on giant electronic billboards in Times Square and nearby neighborhoods.

“Wall Street South. Head for Palm Beach, Florida,” said one. “Wall Street South. Your Future Is Bright in Palm Beach, FL.” said another.

Fort Lauderdale’s Downtown Development Authority, meanwhile, is circulating a report declaring that its central business district and Flagler Village are generating as much economic activity as Port Everglades and Fort Lauderdale-Hollywood International Airport. For this, think about amounts for each entity that are north of $30 billion a year.

The heads of both agencies are advocates of maintaining hard-earned momentum in a highly competitive economic development game made more difficult by stubborn rising costs for businesses and households.

Kelly Smallridge, president and CEO of the development board, said in an interview that her nonprofit agency caught a deal that was hard to resist: Color ads in three locations for $20,000 — not only for this past Wednesday, but for the forthcoming New Year’s Eve celebration as well.

“This is probably the boldest strategy from an advertising perspective  we’ve engaged in anywhere in Manhattan,” Smallridge said. “I can’t image the hype that’s going to take place when it airs on New Year’s Eve.”

Development board representatives have been visiting New York for years touting the county’s “Wall Street South” campaign, which is designed to persuade executives from financial firms to locate or relocate offices, including headquarters, in Palm Beach County.

Smallridge said her agency was approached by a billboard ad firm and offered a discount rate designed for nonprofit agencies.

“We got very lucky and took advantage of it,” Smallridge said. “We could no way afford the real cost. They approached us to see if we wanted to buy it. They never would have had us on their radar had not been such a big story already. Every time you go to Manhattan, people say, ‘it’s not if we will move, but when.’”

She said the ads appeared at the Times Square Tower, the 43rd Rotunda, and on the “I Love NY” Board at 1530 Broadway,

In a statement, the Business Development Board says that since 2019, it has helped 100 firms open offices in Palm Beach County, which is home to 57 billionaires and 70,000 millionaires. Over the years, the board has even connected headmasters of local schools with company executives to assure them that their children will receive top-notch educations in the county’s schools.

“The 10-year campaign has yielded great results and has certainly boosted our economy in Palm Beach County from Boca Raton to Jupiter,” Smallridge said. “Among those gains: higher salaried jobs, more philanthropic donations to local nonprofits, and companies “run by very smart people. They want to be ingrained in the community,” she said of the newcomers. “None of them has received any financial incentives to move here. We are definitely becoming a finance hub in the Southeastern United States. It’s going to be a continuous effort and we’re not going away any time soon.”

A Surge In Fort Lauderdale

Jenni Morejon, the DDA president and CEO, said the downtown’s growth has its “building blocks” in the wake of the recession triggered by the housing collapse 15 years ago.

But that growth has been gradual with a spike triggered by COVID-19 and a growing desire of out-of-state residents to relocate to places such as Fort Lauderdale,said Morejon.

A report commissioned by the DDA and authored by Walter Duke + Partners, a commercial real estate appraisal firm,  concludes that the downtown area, which is defined as a 2.2-square-mile area that runs north of 17th Street to the central business district, Flagler Village and Sunrise Boulevard, “has an annual economic impact of $35.7 billion, a $6 billion increase from 2019.”

“Clearly, the silver lining to COVID was the 250 residents moving in a month into the downtown core,” Morejon said. “The vibrancy of downtown stayed and people were coming into the office. Businesses saw that and continued to locate here.”

The impact figure rivals Port Everglades and Fort Lauderdale-Hollywood International Airport, the authority says. They combine for more than $105 billion in economic activity such as jobs, generation of tax revenue and business transactions.

“There are 40 new developments “somewhere in the review pipeline, with some approved by a city review committee,” said Morejon. “I think the sustainable growth in downtown Fort Lauderdale is certainly something unique. Not a lot of cities get that. We’ve grown in population about 35% since 2020, a little over 60% since 2018 and almost a complete doubling of population since 2010.”

The downtown area is now roughly 26,000, according to the report.

The DDA, though, has no plans to broadcast highlights of its uplifting report on Times Square billboards. In the past, Visit Lauderdale, the tourism promotion agency for Broward County, has advertised its latest campaigns there.

“I emailed it to all of my peers in public and private leadership roles,” Morejon said. “The message to the private sector is to continue to show how economically successful downtown is and how it’s great place to relocate to. From a political standpoint it can be a real center that can benefit the entire county and region.”

 

Source: SunSentinel

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As with so many areas of real estate, there was an operational and profit high during the last few years that was like an industry getting drunk and then waking up with a headache.

Looking back can create regret, but here are some things that MSCI in its Q1 2023 U.S. Industrial Capital Trends Report suggests are easy to underestimate.

1. Immediate Comparisons Are Unrealistic

Would you compare a little kid running around with a blanket tied around the shoulders like a cape to an actual superhero? Of course not. Nor would you reasonably undergo a once-in-a-blue-moon experience and then expect that should become an everyday event. That is the difficulty in looking at typical year-over-year business comparisons in industrial.

“Industrial deal volume hit a record high of $40.6b for any first quarter in 2022,” MSCI wrote. “The next-highest first quarter period was in 2020 when $34.4b traded. Any comparisons of the current quarter to these record high points for the market are going to look harsh. In truth, the market simply slipped back closer to a normal level at the start of 2023.”

According to MSCI’s analysis, average first quarter deal volume from 2005 to 2019 is $11.2 billion. This year’s Q1 transaction volume fits in with the past.

2. The Industry Was Already Gearing Up For Higher Rates

“It can be difficult to think in terms of anything aside from Covid given the collective trauma experienced, but back in the fall of 2019, investors began to adapt to a rising rate environment,” the analysis said, remembering that concerns about rates existed before the pandemic.

CRE professionals attending industry conferences at the time were concerned about the Federal Reserve tightening its balance sheet. But it had been more than a decade since the Global Financial Crisis. Realistically, how long would the Fed put off cleaning its inflated balance sheet?

“Investors wanted to focus more on asset types that had low capex relative to the NOI for a rising interest rate environment, and the industrial sector matched this need.”

3. Investors Were Under-Allocated

The MSCI report suggests that investors hadn’t allocated enough of their capital to the industrial sector. This was true for multifamily, as they reported in a separate publication.

“It is not yet clear that investors have the allocations that they desire as there are many moving parts in place. But with the RCA CPPI for industrial slowing to only a 3.3% gain from a year earlier and volume back to average levels, one might make that case.”

4. Cap Rates Are Up, But Not That Much

One of the stories floating around is the return of cap rates. They are up some, but that’s in comparison to the depths they visited in 2022. Cap rates are nowhere nearly as high as pre-pandemic levels.

“The RCA Hedonic Series cap rate reached5.5% in Q1 2023, up from a low of 5.2% seen in Q1 2022 before interest rates surged. Cap rates have increased only 30 bps in a time when the 10yr UST has increased 170 bps.”

 

Source: GlobeSt

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It’s a good for a city to be called a “magnet,” so long as it’s attracting the right things.

In the case of Fort Lauderdale, business leaders just took heart after PwC, the national auditing and accounting firm, released an annual commercial real estate survey of 80 metro areas that for the first time ranks the city as a top “18-hour city.”

It’s a loosely defined term that refers to smaller cities with amenities, public services, and job opportunities that are comparable to those in larger places such as New York, Chicago and Los Angeles. But Fort Lauderdale is a place where it’s cheaper to live and do business, and where many entrepreneurs and investors find it easier to set up shop. Years ago, the city would button up and workers would go home at 5 p.m.

“Now you have more of an 18-hour city,” said Steve Hudson, president and CEO of Hudson Capital Group, a Fort Lauderdale-based real estate investment firm. “Young people are being attracted here — there are more jobs. People are catching on that this is very laid-back place to live that has a lot of benefits.”

Others cities the category include Charlotte, Denver, Minneapolis/St. Paul, Portland, Oregon, Salt Lake City and San Diego.

The PwC report also said Fort Lauderdale’s downtown is at the leading edge of the nation’s top 10 metropolitan areas that have workers returning to their offices from COVID -19. In addition, retail vacancy rates this year were 4.8%, the lowest in a decade and down from 8% in 2020.

All of it bodes well, according to real estate analysts and leaders of the Downtown Development Authority, for a local economy that is likely to continue a run to the upside in 2022.

The Migration Behind The Magnetism

Much of that optimism is based on a continued surge of population growth as thousands of people moved into South Florida from northern urban areas during the COVID-19 pandemic.

“You’re seeing a pretty strong migration of talent into this area, and the companies are paying attention,” said Ken Krasnow, vice chairman of Colliers Florida, the commercial real estate service firm.

Jenni Morejon, president and CEO of the DDA, said net migration into the city this year was 4,900 people, many of whom took up residence in new apartment towers that are sprouting in Flagler Village. Business leaders expect those numbers to grow in 2022 and 2023, and base their expectations in part on continued inquiries from out-of-town companies looking to expand.

“A rise in the number of downtown retail and restaurant operations is largely attributable to owners noticing a boost in the local population, and taking advantage of rents that are lower than elsewhere in South Florida,” Morejon said. “The downtown population has eclipsed 21,000. Many of the new restaurateurs that came to Fort Lauderdale have seen success in Miami and other places around the country and recognize rent is not as expensive as it is in Miami and West Palm beach. It’s really encouraging. New retailers are coming to downtown Fort Lauderdale. The movement has driven retail vacancy rates in the city’s core downward to 4.8% this year, which is lower than pre pandemic levels.”

Many of the newly arrived residents, Krasnow said, have the ability to work remotely from new homes in Fort Lauderdale while keeping their jobs in their original cities.

“People are free to effectively work or live wherever they want and increasingly they are choosing to live down there,” Krasnow said.

Aside from the well-documented flight from northern cities to the Sun Belt for tax and weather-related reasons, professionals in the legal, financial, technology and engineering fields are looking for more walkable neighborhood spaces and diversified cultural activities.

“The talent is choosing to live in places that have all of those dynamics,” Krasnow said. “We rate very well on all of those scales.”

Tim Petrillo, co-founder and CEO of The Restaurant People, operators of a dozen restaurants in the area, said the pandemic “put gas on the fire” of migration into the city, with many of the new residents being remote workers.

“I know we see all the time these people in the restaurants,” Petrillo said of the demographic. “Before, talent used to follow companies. Now we’re seeing companies following talent. Now companies are looking to establish a presence in our market. One challenge facing the city is that there has not been a lot of office space built in Fort Lauderdale. The 25-story The Main Las Olas which contains 1.4 million square feet of office, retail and residential space at 201 Las Olas, is the only new building with major office space to rise since the Bank of American tower a decade ago.”

Petrillo and Alan Hooper, through their Urban Street Development firm, are in a joint venture with Hines, the Houston-based office development giant, to add to the commercial mix with an expansive mixed-use project in the Flagler Village area, scene of multiple high-end apartment rentals towers.

A key proposed component is a Hines concept called Timber, Transit and Technology [T3], a seven-story structure aimed at attracting technology and financial service firms. The developers expect to complete the project in 2024.

Developers Jockey For Position

The influx of new residents and ensuing demand for places to live hasn’t been lost on developers, who seem to be working overtime at their drawing boards.

“We see that a lot,” said Stephen Chang, chief operating officer of Suffolk Construction of West Palm Beach, which is involved in a variety of commercial projects regionwide. “There is a definite boom going on right now for South Florida,” he said. “You have a lot of out-of-town developers very interested in South Florida because of the climate and its business acumen and how the government has kept the doors open. Financially it’s relatively cheap, when you compare to older cities like New York or Chicago.”

Areas Poised For Prominence

Fort Lauderdale has some areas that developers seem particularly keen on, based on their existing amenities, Brightline among them. For example, the Kushner Companies of New York and Aimco of Denver have proposed a joint venture to build a 540-foot mixed use project at 300 West Broward Boulevard, slightly to the west of Brightllne’s downtown train station. It would be comprised of two 38-floor towers atop a 10-floor podium, with 956 residential units and 23,752 square feet of ground level commercial space, according to the companies’ development application with the city.

The effort would result in the tallest structure in the city, reaching higher than the 499-foot 100 Las Olas building tower and serve, the developers say, as “an urban gateway to the heart of downtown Fort Lauderdale.”

The proposed building follows an earlier proposal Kushner submitted this year for four other high rises called “Broward Crossing,” also near the Brightline station.

Both companies declined to comment. But their application echoed what local analysts say about why developers want to build here: to leverage nearby existing civic and cultural amenities and build momentum toward more growth — and profits.

“The site is located at an important junction between major transportation hubs, civic and cultural institutions, and commercial attractions,” the application says.

It goes on to note the nearby Brightline and the Broward Central Bus Terminal, the civic and cultural landmarks including the future Joint Governmental Campus, the Museum of Discovery and Science, the Broward Center for the Performing Arts, and Esplanade Park.

“The proposed building is an opportunity to create not only an icon for the city, but also a new community space that contributes to the life of the neighborhood and enhances the pedestrian connections from around the city,” the application adds.

The companies also think the project would inspire further development westward along Broward Boulevard.

“The hope is to add new energy to the neighborhood, supporting the local economy and the lives of those throughout the local community,” the application says.

 

Source: SunSentinel

Grocery cart in supermarket org

Instacart is the latest company seeking to cash in on the industrial real estate boom, making plans to build its own fulfillment centers for supermarkets.

The grocery delivery company will begin developing an undetermined number of fulfillment centers over the next year, according to the Wall Street Journal. The centers would be able to hold between 10,000 and 50,000 items.

Instacart plans to use robots to retrieve items in the fulfillment centers and employees to pack and deliver them. It’s unclear how much Instacart is planning on spending.

The company saw business surge during the pandemic, as consumers turned to online ordering to avoid going to grocery stores. Shoppers are beginning to return in-person, however, leading Instacart to adjust its strategy. Fulfilment centers offer the possibility of speeding up orders — a necessity when it comes to groceries — and cutting costs.

Instacart raised almost $700 million in 2020 and is valued at $39 billion. The company has plans to go public.

Warehouses have been one of the hottest commodities in real estate as e-commerce giants and smaller companies alike look to cut costs and accelerate deliveries. From January through May, first-year base rents on leases of at least a year grew almost 10 percent, with larger warehouses seeing even sharper increases.

 

Source: The Real Deal

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South Florida has attracted solid corporate relocations and new regional offices this past year, but experts say an even bigger wave of big tenants is about to flood the market.

Prominent companies, such as Goldman Sachs and Microsoft, reportedly have deals in place, but aren’t ready to announce them yet.

Miami-based Related Group is best known for luxury condominiums, but office space is becoming a bigger part of its development strategy due to demand, President Jon Paul Pérez said. The company fully leased the extra office space in its new headquarters building in Coconut Grove and filled the new Annex office building in Wynwood with new-to-market tenants including D1 Capital and Founders Fund. Now, it’s fast-tracking another office building as part of a mixed-use project in Wynwood, and it’s in discussions with a single tenant that could lease the entire 140,000-square-foot office building,

“Related is planning on Terminal Island in Miami Beach,” Pérez said. “I thought I made the wrong decision pre-Covid because it was only Live Nation in the Annex and it was quiet. But now we are looking to build more office.”

As the Related Group seeks opportunities to build office, location and amenities will be key, VP Nicholas Pérez said. Executives want to be near their homes and great schools, and have access to fitness centers, private elevators and outdoor spaces.

Once Related’s Coconut Grove office filled up, many tenants looking for space there shifted their interest to his office building at 3480 Main Highway, said Raoul Thomas, CEO of Miami-based CGI Merchant Group.

“CGI bought the building during the pandemic with 25% of the space available. It’s now fully leased with rents 15% higher than expected when he purchased it last year,” Thomas said.

Tenants from the Northeast are signing longer leases than most South Florida companies and spending more on office interior improvements. He’s signed over 10 out-of-market financial firms to deals in Coconut Grove and Coral Gables.

“We bought 300,000 square feet of conventional space over the past two years and we’ve taken massive advantage of that,” Thomas said. “I wish I had more office properties now.”

New York-based Related Cos. found tremendous traction leasing office space in West Palm Beach over the past six months, said Gopal Rajegowda, managing partner for the Southeast. Its new 360 Rosemary building has leased 95% of its 300,000 square feet. It plans to break ground on One Flagler, another 300,000-square-foot office, in October because demand has been strong. Most tenants are companies from the Northeast and Midwest.

“The companies are choosing West Palm Beach because it’s near the town of Palm Beach, where many wealthy executives buy homes, and its access to the Brightline passenger rail and the airport, Rajegowda said. “A lot of these companies were looking pre-Covid, but during Covid it accelerated the discussions and they were willing to do transactions. Many of them are setting up satellite offices. They aren’t fully moving here.”

Many companies are right-sizing their office space to reflect a partially remote workforce, but also creating larger workstations for employees and keeping a little extra space in case there’s a rebound in in-office work, said Matthew Goodman, a managing director with JLL in Miami who specializes in tenant representation. The net effect is a smaller office footprint, but companies want to be flexible in case new hires prefer to work in the office. That will lead to more available office space as companies contract, but Goodman is confident it will be filled by relocating businesses.

 

Click here to read more about this story.

 

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The COVID-19 pandemic has forced the South Florida real estate industry to rethink the answers to a range of questions, including how buildings are designed, how goods are delivered, and where and how tenants want to live.

Here are the top 3 emerging trends local industry leaders are watching.

1. Outdoor Space Is Desirable

Retail stores and restaurants took a big hit as shutdowns, restrictions and health concerns changed consumer’s spending habits. Instead of going out to eat, people stocked up on food and avoided in-person shopping, causing a surge in online sales.

Jonathan Carter, executive managing director at Colliers International, says there are a number of deals being done to adapt current spaces to modern environments. And while outdoor environments and open-air concepts in retail stores and restaurants were trending before the pandemic, now there’s a bigger emphasis on it.

“If you had told me in August where we would be today, I wouldn’t have believed you,” Carter said. “The market has gone from having almost no tenants, to what he would now consider a landlord’s market. Landlords who previously had space with a lot of outdoor areas that weren’t perfect, suddenly those spaces are in demand.”

2. Drive-Thru Operators Are Thriving

Last year, the rise in demand for food deliveries, curbside pickup and drive-thrus at quick-service restaurants has been especially prevalent in South Florida, according to Zach Winkler, executive vice president of JLL’s South Florida retail brokerage.

“The demand for more drive-thrus is probably more intense here than any part of the country,” Winkler said. “I think it’s part of the way the restaurant world has shifted a little bit.”

Winkler said sales have remained strong for fast-food restaurants like Louisiana-based Raising Cane’s, and he expects to see an expansion of the chain in South Florida.

“Their sales remained very strong during COVID, and the fact that they’re one of the most efficient drive-thru operators out there,” Winkler said.

3. Offices Are Morphing

As large amounts of people continue to migrate to South Florida and many others prepare to return to the office after a year of working from home, companies are looking at different models for remote and in-office workers. With social distancing changing the way people interact with one another, employers want to give their employees more space and a healthy environment.

Jonathan Kingsley specializes in office and industrial representation of landlords at Colliers International, and he said returning workers are typically getting more square feet per person, while offices are being redesigned.

Remote work is here to stay, but Kingsley feels it won’t be on the scale everyone thought it would.

“Certain employees are absolutely required to work in the office 100% of the time,” said Kingsley, “There’s a second-tier in which there is a three-day at the office, two-day at-home model, three-day at home, and two at the office, and then there is another model where you work from home 100% of the time.”

Click here to for the remaining emerging trends.

 

shipping containers

Shipping never stops. But, the Covid-19 pandemic certainly altered how it was done in 2020.

Locally, container revenues at the Port of Jacksonville for October — the most recent number information was available—was 1% below October 2019 figures at $2.86 million. Auto revenues for the same period were $1.35 million, a 2 % decrease. The year was expected to wrap up with volumes continuing to rise but still below the same period in 2019.

“For the first quarter we should be doing better than projected,” Jaxport CEO Eric Green said.

“The state’s ports are catalysts for commerce,” said Florida Ports Council chief executive Doug Wheeler in a November podcast with Tallahassee Chamber of Commerce.

Wheeler represents the state’s 15 deep water ports, including the Port of Jacksonville and Port of Fernandina.

“I’m confident that our seaports will play a big role in that recovery,” Wheeler said. “…We’re about $117 billion. Our ports are delivering, pretty much, everything that people, businesses, residents, consumers in our state are using in their everyday lives.”

Wheeler said the diversity within the state’s ports is what allowed many to withstand 2020. Jaxport executives certainly believe that is the case.

“We’re not just all cruise ships,” said Ed Fleming, a longtime maritime executive who has served on the Jacksonville Port Authority since 2014. “We’re bulk cargo. We’re Asian cargo. We’re domestic cargo. We do some military cargo, liquid bulk, dry bulk. So, we don’t have all our eggs in one basket. And, I think, that diversification has shielded us, somewhat, from some of the other ports that are heavy into cruise ships like PortMiami and Port Everglades.”

Fleming said the key heading into 2021 is getting the pandemic under control.

“Covid will still be with us next year, for the most part,” Fleming said. “It will get better and better, gradually, over time. I think 2021 will be better than 2020, but probably not back to normal – in any industry for that matter.”

 

Source: Jax Biz Journal

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Long before the novel coronavirus pandemic sent Americans racing for their smartphones to order groceries, industrial real estate observers were keeping a close eye on the availability of temperature-controlled warehouses.

Covid-19 vaccines that require very specific temperatures — Moderna Inc.’s vaccine requires temperatures of minus-20 degrees Celsius and Pfizer Inc.’s candidate requires storage at minus-70 degrees Celsius — have put cold-storage warehouses in the spotlight in recent weeks.

But the sector has seen little vacancy for years, and industrial real estate experts don’t expect that to change as consumers shift more of their food shopping online, even after the pandemic is in the past.

Historically, the national vacancy rate of cold-storage warehouses has hovered below 10%, according to JLL, and much of that inventory is aging and rapidly approaching functional obsolescence. The average cold-storage warehouse in the U.S. is 42 years old, according to JLL.

“If we have a client who wants to know all the available temperature-controlled storage in the U.S. … on any given day, this isn’t something that takes up 10 pages,” said Tray Anderson, Cushman & Wakefield Inc.’s logistics and industrial lead for the Americas. “It’s more like two or three.”

The lack of available space is a function of economics: Temperature-controlled warehouses cost nearly twice as much to build as their dry-storage counterparts, according to JLL, which forecasts that those construction costs will only rise as demand intensifies. A temperature-controlled warehouse can cost $130 to $180 a square foot, whereas construction costs for a conventional warehouse range from $70to $90 a square foot.

“That pricing makes speculative construction — breaking ground without a signed tenant in place — difficult but not impossible,” said Anderson, who is based in North Carolina.

But the uptick in demand from food companies and retailers — coupled with the variable of a massive vaccine-distribution effort — is enough to embolden some developers to try their hand at speculative construction. Already, 95% of U.S. food goes through a third-party distribution center before it reaches consumers, according to CBRE Group Inc. And as early as May 2019, CBRE predicted that the country needed an additional 75 million to 100 million square feet of cold-storage space to meet demand for direct-to-consumer food orders — and that was before the pandemic threw online ordering of everything from furniture to food into overdrive.

“JLL is tracking more than 20 speculative cold-storage developments,” said Dustin Volz, a managing director on JLL’s capital markets team who specializes in such properties.

Cold-storage properties tend to be specific to individual users, but Anderson said projects could at least begin construction by pouring a floor that can handle a specific temperature.

“Speculative cold storage is still challenging, but a few select developers are figuring it out,” said Volz, who is based in Dallas.

Vaccines for the novel coronavirus aren’t expected to drive much additional supply for cold storage because the goal will be to administer the vaccines quickly. What that might do for short-term demand for space is another matter.

“The growth we’re talking about isn’t really vaccine-related; it’s food,” Anderson said. “Especially at minus-20 degrees … Minus 20 is much more common with pharma and food. You can find space that can do minus 20. You’re not going to find any vacant space at minus 80.”

Volz agreed that food is driving the majority of the demand — and that the pandemic highlighted weaknesses in the U.S. food supply chain, such as its reliance on international vendors and inability to handle sudden upticks in demand.

“The need for excess warehouse space is therefore a result of keeping additional inventory to handle any surges in food demand,” Volz said, “and maintaining a domestic supply chain with the unrestrained geographical access for the population with supplemental food imports to complement the new infrastructure.”

 

Source: SFBJ

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The US commercial real estate market is looking very cheap to foreign investors, who find their currency hedging costs aligning nicely with the direction of interest rates.

Currency hedging costs are driven by interest rate differentials between two currencies. Low US rates translate to lower costs for foreign investors looking to hedge the currency risk of their US investments. Here is why this dynamic is expected to continue.

 “Short-term and medium-term rates drive hedging costs,” Ciccy Yang, director of Global Markets for Hudson Advisors told listeners in CBRE’s weekly podcast. “And on that front, the Fed’s been giving very strong hints that more fiscal stimulus is needed to keep the economic recovery on track.”

If the stimulus is less than what the Fed prefers, Yang thinks it may have a more significant role in spurring the recovery. Its tools include more quantitative easing for an extended period and a further delay on the next Fed hike.

“The Fed currently forecasts that they’re going to be on hold until the end of their forecast horizon at year-end 2023 as per their dot plots,” Yang says. “In other words, they’re already forecasting short term rates will be bound to zero for quite a long time. Now, we already saw significant hedging cost declines from the beginning of this year when US rates fell significantly in the flight to quality and Fed easing on the back of the onset of COVID-19.”

The five-year annual hedging cost for Euro-based investors in the US has fallen 100 basis points this year to 1.2% today, according to Yang. In the same period, it has fallen 50 basis points to 2.6% for South Korean investors.

“There probably isn’t that much more room for these levels to fall further,” Yang says. “But given the likely expectation of accommodative Fed policy, it does feel like the lower currency hedging costs are generally here to stay in the near term.”

So far though, foreign investors are, for the most part, not biting.

In Q3, cross-border investment fell 71% year over year to $3.5 billion, according to Real Capital Analytics. This is still better than the low of $0.5 billion seen in the depths of the Global Financial Crisis.

The drop-off in cross-border investment might be partially the result of the types of properties being sold. Cross-border groups find it easier to purchase larger properties. Sales for assets priced greater than $50 million fell 61% year-over-year in the third quarter, while properties priced $5 million and below fell 39%, according to RCA.

Some foreign CRE investors, however, are stepping up their US  allocations. In the first nine months of the year, Korean investors accounted for 8.6% of all overseas investment in U.S. commercial real estate, up from 3.7% a year earlier, accordingto the Wall Street Journal,  citing Real Capital Analytics numbers.

South Koreans invested $1.56 billion, up from $1.24 billion a year earlier, trailing only Canadian and German investors, the WSJ said. A year ago, South Koreans ranked 10th among foreign investors in U.S. real estate.

 

Source: GlobeSt

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First Industrial Realty Trust continues to bet big on South Florida’s industrial market, this time with a warehouse proposal in Margate.

First Industrial Realty Trust wants to build FirstGate Commerce Center in Margate.
(IMAGE CREDIT: RLC ARCHITECTS)

The city’s Development Review Committee will consider the site plan for FirstGate Commerce Center on Nov. 10. The 9.3-acre property is at the northwest corner of Copans Road and Banks Road.

FR5355 Northwest 24th Street LLC, an affiliate of Chicago-based First Industrial Realty Trust, acquired the vacant site from AutoNation for $8.6 million in late 2019.

The site plan calls for a 131,680-square-foot warehouse with a 32-foot clear height, surrounded by 186 parking spaces.

Chris Willson, senior regional director at First Industrial, couldn’t be reached for comment. The developer is working with RLC Architects and Sun-Tech Engineering on the project.

There’s been strong demand for industrial space during the Covid-19 pandemic as the sectors of e-commerce and trade grow. First Industrial also has a large warehouse project in neighboring Pompano Beach.

 

Source: SFBJ

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Panelists representing the industrial, office, retail and multifamily sectors of commercial real estate made the case for investment in their respective sectors at NAIOP’s CRE.CONVERGE, the virtual conference recently taking place.

In a real-time audience poll, the attendees cited industrial as the sector they would be most likely to invest in.  However, much of the discussion pointed to the upsides in what, so far in 2020, has been mostly seen as a negative story for the other sectors.

“Retail may be the sector everyone loves to hate, but all that means is that it’s at the bottom of a cycle that is going to rebound,” said Wade Achenbach, executive vice president, Portfolio Management at Kite Realty Group. “The strip sector and the mall business were struggling for a lot of reasons, and COVID has dramatically made them the hardest hit. If you just look at that trend alone, that’s going to be short lived. You have to be very careful of what you’re looking at. There is no online-only retailer that’s making money today, nor has there ever been. What’s really happening when somebody says e-commerce?  It’s more of an omnichannel. Even Amazon realizes the value of stores with its purchase of Whole Foods.”

The old adage, buy low and sell high, applies.

“I think there is more of an opportunity (in retail) than any of the other sectors,” Achenbach said.

Speaking on behalf of the office sector, which many are questioning in light of the shift to work from home, George Hasenecz, senior vice president, Investments at Brandywine Realty Trust, said its demise has been incorrectly predicted in the past — just as it is now.

“When you think about all the economic events and social trends that have occurred, the dot com bust, September 11, the densification of the office and COVID, people have always said that office is dead. Office has always reinvented itself,” said Hasenecz. “Work from home has been successful in response to the crisis, but it’s very difficult to work in a collaborative environment. How do you maintain your culture, bring new employees on and recruit? Work from home really does go against people’s needs and desires to come together. We think that Class A office is going to be in high demand. Companies want to make sure their employees and their talent feel safe. There still is the competition for talent and office space will be used as a recruiting tool.”

A similar story is playing out in the multifamily sector, said John Drachman, co-founder at Waterford Property Company. The pandemic has driven many people out of dense urban areas and into suburban multifamily units. The turnaround has been sharp in large markets such as New York, San Francisco, Los Angeles and Chicago, where vacancies are increasing and rents are falling. One year ago, the main story line in these markets was a lack of affordable housing.

“As with retail and office, a wider perspective will benefit investors,” Drachman said. “People will move back to urban areas. If you can stomach a little bit of pain, over the long term there could be great buying opportunities for urban apartments.”

Rene Circ, senior managing director and COO at GID Industrial and GID Investment Advisors LLC, spoke on behalf of the industrial sector, which to no one’s surprise seems to be strong. He said there are essentially very few people who are not buying things online.

“I would argue that too much capital is allocated to multifamily and way too much is allocated to retail,” Circ said. “Investors will need to invest in industrial.”

The panel was moderated by Will McIntosh, head of Research at USAA Real Estate.

 

Source: GlobeSt.

double down

For some Miami developers, the last few months have provided an opportunity to “double down.”

“Our affordable division is extremely active,” Jon Paul Pérez, executive vice president of Related Group, said during The Real Deal’s latest episode of Coffee Talks.

Pérez noted that Related has broken ground on three projects in the last 45 days.

Another guest on the episode, Dezer Development founder Gil Dezer, also remains bullish on building across Miami. Last week, Dezer received the first approval for a massive project at North Miami Beach’s Intracoastal Mall, despite opposition. When asked about financing for the project, Dezer said that his company has been covering all costs.

“We don’t have financing today, but we don’t necessarily need it today either,” Dezer noted.

For Pérez and Related — the largest developer in South Florida — there are opportunities away from the luxury beachfront markets.

“We’re very bullish in Wynwood,” Perez said. “I think that’s one of the neighborhoods that has the most growth potential.”

He noted that Related owns four sites there, which it will transform into 2,000 units, and is finishing a new headquarters in Coconut Grove.

The pair are competitors and collaborators: Dezer and Related teamed up on the Residences by Armani/Casa last year. Closings began in December 2019.

“It was just in time, Dezer said. “We had our opening party, and a week later, Covid happened. Sometimes you have more luck than brains.”

Click here to watch the YouTube video Coffee Talk with Gil Dezer & Jon Paul Pérez for more top developer takes on the Miami market.

 

Source: The Real Deal