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Archive for the ‘Transactions’ Category

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.

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.

Banking Rates

by Chris Garcia, 3:00 PM on September 13th, 2011, No Comments

Here is guest blog from US Banker Crista Lentsch:

Good Afternoon -

As you know, I consistently search for positive news to include
in my monthly updates.  I continue to see business owners investing in equipment
and property, financial statements that are improving and overall, a more
positive outlook than what the media tends to focus on.

Commercial Real Estate Rates as of 9/13/2011:

3 year term, 15 year amortization:
*3.29%

5 year term, 25 year
amortization: * 3.89%

15 year term, 15
year amortization:  *5.09%

Lines
of Credit:  Prime + 0.50% with NO FLOOR

Equipment Financing:
- Application Only up to $350,000 (dependent upon
industry)

- Purchase and
Refinance

- New and Used
Equipment

- Extremely Low Rates
Crista M Lentsch
US Bank –  Business
Banking
Business Banking Officer
Direct: 651/604-1633
Mobile:
651/470-4431
Fax: 651/582-0416
crista.lentsch@usbank.com

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:

Office

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

Industiral

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

Investment

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.

13010 County Road 6 Building Sold!

by Chris Garcia, 5:24 PM on June 30th, 2011, No Comments

13010 County Road Six sold on Wednesday June 30, 2011 for $1M.  The property is a 60,780 SF building with 18′ clear height and 100% A/C.  The per square foot price was $16.50 and was orginally listed over $3M.  This represents a price reduction of 66% off the original listing price.  The property sat on the market for over 3 years and had 2 different listing agents.  For most of the 3 years it was marketed as a 14′ clear heigh property, clear height has a big impact on value and the additional 4′ make this an exceptional deal.  18′ clear height in Plymouth for $16.50 psf is an absolute steal.

This was ranked as the number 10 best deal available  in the market, now it is looking like a top 5.

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