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Real Estate « CGC Commercial

Archive for the ‘Real Estate’ Category

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.

Commercial Real Estate Seminar- Finding Distressed Property

by Chris Garcia, 6:26 PM on February 15th, 2012, No Comments

The market is still very weak and lenders, corporations, and distressed sellers are looking to unload property!!  Call us today to put together a search to find these assets that will fit your companies’ needs.  952-955-4400

If this is something you are considering in the next 3-24 months you will not want to miss our seminar on purchasing distressed property!!  Please see below:

Market Seminar on Distressed Assets

This seminar will put you in the best position to find distressed assets but also identify items to look out for.  The last thing any investor needs is a money pit that distracts them from their primary business.  If you own a business and  are renting you NEED to be looking at some of the amazing deals in the marketplace.  Here are some additional details on our seminar:

  • Finding Distressed Property
  • Evaluating the potential upside of the asset
  • Financing Options for Purchasing including SBA programs
  • Buying Commercial Notes
  • The event will be held on April 18 at Crowne Plaza in Plymouth from 8:15-9:30am.  If you would like to attend, please contact Chris Garcia.  Space is limited so act quickly!
  • Chris Garcia
  • 952-955-4400
  • chris@cgccommercial.com

    CGC Commercial is an Advisory Services company that focuses on helping businesses with their commercial real estate.  Our Advisors have over 40 years of industry experience and have been top performers at some of the largest real estate companies in Minnesota.  Collectively our Advisors have sold over $200M of real estate.



    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:


    • 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
    • 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.


    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.

    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.

    Northmarq Compass Market Report July 2011- Summary

    by Chris Garcia, 7:33 PM on July 27th, 2011, No Comments

    On July 26, 2011 Northmarq’s Minneapolis office released their market report.   The report discusses office, industrial, retail, investment, multi family, and now hotels.  We focused only on Office, Industrial, and Investment Properties.  Here is the summary:


    The viewpoint from the report is bullish, especially when you consider that the vacancy rate is high by any standard at 19.2%.  That is 7 percentage points off the 2001 level of 12%.  The absorption for the first half of 2011 was 324K SF.  All of that absorption can be attributed to Class A leasing.  Class A leased over 500K SF alone.

    They predict an additional 950,000 SF of absorption for the 2nd half of 2011 which would equate to over 1.25M SF of positive absorption for all of 2011.  That would be a great year.  Here is the summary:

    • No new office buildings under construction at this point
    • Mpls CBD is healthy for Class A office at 10-5% vacant
    • 500,000 SF of leases are signed and not included in their numbers
    • Class B and C are extremely competitive for Tenants.  Both posted negative absorption thus far in 2011
    • Class A posted 500,000 SF of positive absorption alone in 1st half


    The outlook for industrial is generally positive.  With 500K SF of positive absorption and a prediction of another 500K SF for the 2nd half, the feeling is that the market is turning the corner.  The northwest lead the way in activity as it did in the last recession with some large deals including Great Northern (100K SF), General Mills (65SF), Medline (300K SF),  and ATK (300K SF).  885,000 SF total was completed in the northwest alone.

    • 540,000 SF positive absorption for 1st half
    • 16.9% vacancy rate
    • Large Users in the market including RR Donnely (300K SF), Sanmar (500K SF), FedEx (100K SF)
    • Bulk Warehouse is at 14% vacancy, close to being a healthy rate
    • Rates predicted to tighten in 2012
    • New construction is not mentioned


    More investors are looking at the Twin Cities as a good place to own real estate.  Cap rates are moving downward as the market becomes healthier and liquidity is starting to return.

    • More institutions have focused on the TC Metro area
    • The properties of choice are Class A office, Bulk Warehouse, Grocery Anchored Retail
    • Mpls CBD gets a 100 basis point premium over suburbs 7-8 Cap
    • CMBS market is on the rebound which is helping liquidity
    • Cap Rates are 6.6 for Multi-Family, 8.2 for Retail, 8.6 Industrial, and 8.3 Office

    Check out the full report at http://bit.ly/pv7wJR.

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