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November « 2011 « CGC Commercial

Archive for November, 2011

Boyd Stofer- CEO of Marquette Real Estate Group 1949-2011

by Chris Garcia, 11:01 PM on November 29th, 2011, No Comments

When I started at United Properties in 2002, Boyd Stofer was CEO of United Properties Real Estate Group which was focused on development, brokerage, property management, construction, and real estate ownership for UP. Through the last 9 years the company grew significantly with Boyd’s leadership.  He then become CEO over all of the Pohlad owned real estate companies which included United Properties, RJM Construction, Northmarq Capital, and now Cushman and Wakefield.  Currently those companies are under the Marquette Real Estate Group (MREG) umbrella.

The development that gained Boyd and United Properties national recognition was the Centennial Lakes Development in Edina which featured multiple Class A office buildings.  Boyd was instrumental in this development which eventually helped in winning National Developer of the Year in 2004.  This was proudly shown to all visitors that year with a banner in the reception area.

From my point of view, Boyd was our very soft spoken, extremely friendly, and intellectual leader.  My biggest experience with him was in pursuit of a large industrial portfolio in the Plymouth area.  After winning that portfolio, he would frequently stop by my cube to discuss the market, lease rates, and state of that portfolio.  He genuinely cared about the performance of the portfolio, it was important to him to perform at a high level for the Client we won together.

Boyd was very well respected and liked among the employees at MREG.    The company was frequently named “Best Places to Work” by the Business Journal, which he was proud of.  Here are some comments from past employees:

Tom Sampair- Leasing Agent at MREG from 2002-2011 “It’s very sad and shocking news and unfortunate that he was so young.  Boyd was extremely smart, was a great leader, and is a legend in the commercial real estate industry and his passing is definitely a loss to all of the MREG companies and our industry.”

Matt Sonntag- Asset Manager at MREG from 2000-2011 “Boyd was an extremely intelligent leader and great role model.  He truly was a class act and was instrumental in leading us through this last recession.  He will be missed.”

Funeral will be held in Mpls on 12/3/11 here is the obituary: http://bit.ly/srNxWE

NAIOP 2011 Office Update

by Chris Garcia, 11:47 AM on November 16th, 2011, No Comments

The NAIOP Office update was held November 15 at the West End in St Louis Park, MN.  It featured area brokers and one investor.  The overall sentiment was that the market is improving but will likely not see rent increases for at least 12 months.   Concessions are still being offered however there are some areas in the market where Landlords are starting to tighten their offers.  No new developments were discussed in the program  however there is one development in Uptown which is the 65,000 SF Mozaic building.  Here are some of the numbers:

  • 540,000 SF of absorption in the last 12 months
  • 340,000 SF from Minneapolis CBD alone
  • 17.7 % metro wide vacancy rate
  • 14% Class A vacancy rate
  • 21% St Paul CBD vacancy rate

The most bullish sub market is the Minneapolis CBD.  With 340,000 SF of new space leased and a 10% Class A vacancy rate, it is by far and away the best sub market in the Twin Cities.  Several new developments were discussed including the Hines site in the warehouse district and a site on Nicollet.  The biggest issue with new construction is rental rates, since rates need to be in the low $20’s per square foot (currently around $14) we will need to see significant rent growth to support a new tower .   Look for an increase in rental rates in this sub market where other markets are likely to stay flat.

The most bearish submarket is St Paul with vacancy rates of 21% in the CBD and 20% in the suburbs.  Overall that market had negative absorption and an overall negative sentiment.  If you are looking for the lowest rental rates in the Twin Cities, St Paul is where you will find it.

The south west metro had a good 12 months posting 420,000 SF of positive absorption.  They were led by United Health Group which purchased the ADC Corporate Headquarters and have been aggressively taking space.  The south west did see some large vacancies come back including the 100,000 SF ATK Corporate headquarters.  The vacancy rate remains high at 18%.

Finally the northwest sub market showed negative absorption at 95,000 SF.  The vacancy rate is 17% and sounded flat in comparison to the southwest and Minneapolis CBD.

Some of the larger vacancies that remain in the Twin Cities include the Delta/Northwest Headquarters at 300,000 SF, the 400,000 SF State Farm building, the 100,000 SF Buffets Inc Headquarters, and ATK’s 100,000 SF.  The area has been hit hard by corporate downsizing.

Moving forward, the predictions are for very modest absorption.  Most submarkets are expecting under 200,000 SF of absorption where you would see 400,000 SF in a healthy market.   Overall a very good presentation of the market.

The featured panelists were Tom Tracy, Dan Gleason, and Tom O’Brien from Cushman/Wakefield, Chris Rohr from Jones Lang Lasalle, Mike Salmen from Transwestern, Ted Holmes from IRET, and Dick Keller.



Purchasing Commercial Real Estate Mortgage Notes

by Chris Garcia, 2:23 PM on November 12th, 2011, No Comments

Much has been talked about when it comes to distressed commercial real estate over the last few years.   More and more property has come to the market as a result of mortgage default.  In the last 12 months it seems even more property has gone back to the Lender.  As a Buyer you might be thinking, how can I take advantage of this?  There are 2 ways:

1. Wait till the bank forecloses on the property and puts it on the market.

2. Purchase the mortgage note before it goes into foreclosure.

Under the 2nd scenario, the Buyer purchases the distressed note from the Lender BEFORE the foreclosure process starts.  The discount is usually steep, anywhere from 40-70% off the market value. Reasons for this include:

  • Lender can get the real estate off their books immediately
  • Lender no longer has to go through the foreclosure process
  • Lender does not incur legal costs which can be heavy
  • Lender does not have to incur hold costs while the property is foreclosed and title is cleared
  • Lender does not have the uncertainty of knowing when the property will trade

Those are some of the reasons why the Lender is prepared to take a lower price on the property.  From the Buyer point of view, there are risks associated with the purchase, here are some things to think about before buying the note:

  • Most of these transactions are completed in cash and close in less than 30 days from the sale price agreement
  • Many Lenders will not negotiate the documents such as a Purchase Agreement
  • Legal costs associated with reviewing loan documents, foreclosure process, and the redemption period can be expensive. Speaking with Moss and Barnett they estimated costs can be anywhere from $25-100,000
  • Due Diligence can be limited, when purchasing real estate the due diligence period can range from 30-90 days while in this scenario that amount of time is much less and limited in the scope.  One example is environmental, likely you will be limited to the existing documents versus having the time to do your own investigations.

There have been some high profile transactions that have occurred this year, possibly the biggest being the 99,342 Square Foot (SF) Buffets Inc Headquarters in Eagan.  Here is Sam Black’s article from February of 2012 http://www.bizjournals.com/twincities/blog/real_estate/2011/02/former-buffets-hq-auction-set-to-begin.html.  The property had an assessed value of $9.5M.

Currently, there are a handful of notes for sale in the Twin Cities including:

  • 60,000 SF Office/Warehouse in Brooklyn Park
  • 231,000 SF Office/Warehouse in Edina
  • 54.000 SF Office building in Minnetonka
  • 55,000 SF Office/Warehouse in Edina

Having a team in place to complete this complicated transaction is important, some people to have on board include:

  • Attorney- absolutely necessary to have them review loan documents and assessing the risk before you start bidding
  • Broker- need to have an understanding of what the market value is and what you can purchase for to understand the upside in the transaction

Those two partnerships should get you on the right track.  Buying the commercial note can be risky but also provides the greatest upside potential.  In the economy we are in, there are some great deals available and this should be carefully considered.

2011 MNCAR Awards

by Chris Garcia, 11:39 AM on November 3rd, 2011, No Comments

CGC Commercial has been asked to participate in the 2011 MNCAR awards as a judge for Industrial Deal of the Year.  MNCAR is the association of Minnesota commercial real estate brokers.  We will be evaluating the significant deals in the market along with 3 other judges.  The items that will be reviewed are:

  • Transaction Size
  • Complexity of Deal
  • Market Impact

Some of the deals that could be nominated include:

  • Medline’s 300K SF build to suite (BTS) in Rogers
  • ATK’s 100K SF lease in Anoka
  • Metro Mold 100K SF in Brooklyn Park
  • Dedicated Logistics 150K SF in New Hope

No question the size of the deal is important however the complexity of the transaction should be weighted heavier.  Look for future blogs on the nominees!