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6 Ways You May Be A Candidate For Lease Savings

by Chris Garcia, 11:34 PM on March 29th, 2012, No Comments

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6 Ways You May Be A Candidate For Lease Savings

Real Estate Recycling’s Redevelopment of BAE Site

by Chris Garcia, 2:52 PM on February 25th, 2012, No Comments

In the Friday, February 24th edition of the Business Journal, Sam Black reported on the potential redevelopment of the BAE site in Fridley http://www.bizjournals.com/twincities/print-edition/2012/02/24/real-estate-recycling-to-buy.html.  The site is 140 acres total with a 2.1M square foot (SF) building being occupied by BAE.  Currently the site has property taxes around $500,000 and roughly 350 employees.  With the redevelopment of the site, about 1.5M SF of new industrial will be built.  Real Estate Recycling (RER) estimates that once completed, the tax basis will be around $3M with up to 3,000 jobs.

From a real estate perspective, the location makes sense as it has highway access (I-694) and close proximity to Minneapolis and St Paul.  There are many other factors that will benefit this development, those include:

  • Low tax basis to start- Since there is TIF financing available and real estate is taxed in arrears, RER will be able to offer their buildings on a low cost basis which will make it competitive with existing properties.  There might be some cases where RER’s buildings will be cheaper in the first few years.
  • Ability to accommodate large users- Currently there is a shortage of large blocks of industrial space.  With a 140 acre site, RER will be able to build any size building.
  • State of the art industrial- Most of the high clear industrial buildings are built in 3rd and 4th tier suburbs like Shakopee, Rogers, and Brooklyn Park.  Fridley would provide high quality just minutes from Minneapolis.

Once the site is developed, it will have a high value.  RER is known for building institutional grade real estate and tends to attract high credit Tenants such as Caribou, Thyssen Elevator, and Wagner Spray.  Here is an estimate of how the economics of the site could look:

Potential Income

1,500,000 SF of property leased at $6.85 per square foot= $10,275,000 annual net rents

$102,750,000 rental rates of institutional grade real estate could have a low cap rate. We’ll use an 8= $128,000,000 of real estate value

That $128M of value is where RER is getting their estimated $3M of annual taxes per year.  Here is an estimate as to what it might cost to construct that amount of real estate:

Construction Estimates

1,500,000 SF with a shell rate of $35 PSF= $52,500,000

25% of the buildings will be office, which brings in a cost at $45 PSF= $16,875,000 office improvements

There is a 2.1M building that needs to get demolished at $1 PSF= $2,100,000

Legal fee, developers fee, surveying, engineering, leasing commissions, and marketing will cost another $10 PSF= $15,000,000

The asking price on the site is $20M, but RER will likely not pay that amount = $15,246,000 or $2.50 PSF for the land is a guess

The grand total from this estimate is $100M. The estimated value after the site is leased is around $130M.

The development seems to make economic sense. It also makes sense from a real estate fundamental stand point as the location has efficient highway access and proximity. Overall, the only question is if the market is ready for this size of development.

February 2012 Market Update

by Chris Garcia, 5:16 PM on February 1st, 2012, No Comments

The overall market is improving steadily, and will continue to do so.  Absorption is expected to be over 800,000 SF for 2012.  United Health Group continues to acquire property while St Jude and Target are gearing up for large expansions with Target building 700,000 SF in Brooklyn Park.

Here is a brief overview of the Twin Cities office and
industrial market:

Office

  • 484,000 square feet of positive absorption for 2011
  • Vacancy rate fell to 19.2%
  • Vacancy rate fell for the first time since 2006
  • Vacancy among class A properties is at 14.9%
  • 656,000 sf of positive absorption recorded for class A
    properties
  • Minneapolis CBD showed 116,000 sf of positive absorption showing
    positive absorption for the second consecutive year
  • Minneapolis CBD fell to 18%

Market rates were flat in 2011 and 2012 should see an increase.  Market-wide rates are $23 per square foot gross, versus $22.50 psf at year-end 2010.  There have been no new office buildings since 2009.

Industrial

The industrial market is showing a 17% vacancy rate at this point.  Leasing activity was decent for
2011 with 600,000 square feet of positive absorption. Rental rates are also flat and average net rates are currently at $4.25 and $8.00.

There are no new multi-tenant projects under way in the Twin Cities however there are some build to suits. The BTS include a 300,000 SF building for Medline, 580,000 SF building
for Sanmar, and a 100,000 SF building for Tri-Star.

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

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