CRE Cliffnotes 2/27/12

I had asked real estate expert Giselle Bundchen to guest write this week’s CRE Cliffnotes, but for some reason the language in her email didn’t make it through most of your the firewalls.  She did have some choice words about Natural Gas demand.  “Oil prices can’t do it all!”  she noted.  Giselle was referring to the fact that many gas exploration and production companies could have trouble keeping their credit ratings with natural gas prices so low.  Not a problem for oil E&P companies – yesterday oil hit an eight-month high above $121 due to Iran supply worries.  I hope you don’t mind me writing in her stead. 

As always, I hope you find the following articles value added to read or send to friends/clients:

 

NYT: Bullish on Houston

ü  Link 

ü  Short Overview:  You know your city is in a bull market when the establishment of the New York Times writes a optimistic piece about you.  This article highlights that while most cities in the U.S. are in recovery (at best), Houston is full steam ahead and in expansion mode. Silicon Valley is to technology as Houston is to Energy, in that Houston has an infrastructure of talent and the coupling of synergistic companies which create a pulling effect for other energy companies to relocate or start in the city.

ü  Shorter Takeaway:  I would read the NYT more if Jim Arket was quoted more and in the article he rightly calls oil prices and shale exploration the “force multiplier” of  the overall Houston boom.  The question is, how long will this force multiplier last?  It is the wise real estate professional to know that we are in a limited window of heightened demand that will eventually subside – best to act accordingly. 

Rollover Risk:

ü  Link

ü  Short Overview:  I had to temper the overly optimistic previous article with a little cautiousness (it’s good for us blindly optimistic folk).  Let’s face it, nationally there are quite a few  five-year leases signed at historically high 2007 fundamentals that are coming up on renewal this year which will create some varying problems for landlords. 

ü  Shorter Takeaway:  Many office owners around the U.S. that have large rollovers signed in 2007 might find it challenging to renew leases at rent levels signed prior to the downturn, but I would temper this by saying in Houston fundamentals are quickly approaching 2006 and 2007 figures (not there yet, but approaching).   

CBRE 12 Trends for ‘12

ü  Link

ü  Short Overview :   CBRE Economic Advisors has a new report coming out that details the 12 trends of 2012 and this helpful overview has some good takeaways.  The “FUD” (Fear, Uncertainty, and Doubt) factor of the European debt saga is the backdrop of caution to what are predominately optimistic trends such as: Class A industrial properties cap rates getting too low of yields for many buyers, and finance jobs recovering as housing slightly improves.

ü  Shorter Takeaway:  We have seen a suburban office market fundamental renaissance here in Houston, and an interesting trend noted is a national recovery in suburban office fundamentals.   

Too much Supply of Texas Tea?

ü  Link

ü  Short Overview :   With Iran causing trouble, the oil  markets have been in a frenzy as brent crude rose to an 8 month high of $121 yesterday. Domestically however, supply is mitigating the price because of our friends in West Texas:   Due to their production, West Texas intermediate crude prices are at a record discount to Brent.

ü  Two Takeaway:  Very interesting to keep our eye on if the rise of oil shale fracking will have a similar impact on the supply side fundamentals of oil market that gas fracking has had on the natural gas market.

The Next Office

ü  Link

ü  Short Overview :   Executives and business leaders are all faced with ever increasing challenge:  Balancing global competition for customers/talent and the driving need to innovate with cost pressures. Amazing how much corporate decisions for office space have to do with each of these challenges.  The building and office design a leader chooses for his/her company directly impacts how employees share information, collaborate, and innovate.  In the end it all ties to the lower right hand corner of the balance sheet. 

ü  Shorter Takeaway:   Office real estate structure and design helps organizations recruit, retain, create, innovate and drive growth – and the savviest of corporations are realizing the power of well-designed space.  This is a great article. 

Stats for the Water Cooler:

·         Natural Gas Supply: E&P companies will reduce dry gas capital spending by 40% in 2012  (Stat)

·         US Rig Count up five last week:  Up 281 year over year (Stat)

·         Oil price falling on demand:  Iran concerns had oil move to $ 104/barrel  (Stat)

Houston CRE News:

·         Oil and Gas Hiring:  Firms scrambling for personnel (Stat)

·         Sidley Austin law firm: Opens Houston Office (temporarily operates at JPMorgan Chase Tower, will be moving to permanent space this year  (link)

·         Stanford Building Lease:  Keller Williams signs lease in old Stanford Office building (link)

As always, thank you for reading and hope you have a great week.

CRE Cliffnotes (9.6.11)

Well, look at it this way….we didn’t lose any jobs in last week’s report.  I am a silver lining guy and we did have 4% growth in chain store sales and increased auto sales in spite of a hurricane shutting down most of the east coast.  I am stretching here aren’t I?

 Hope the following is a quick, helpful, and easy to read overview of some Commercial Real Estate stories from the past week:

 Remembering 9/11

ü  Link

ü  Two Sentence Overview:  This Sunday is the 10^th anniversary of the largest attack on US soil in our nation’s history in New York City, Washington DC, and Pennsylvania.  Incredible to recall all of the acts of heroism that occurred that very dark day. 

ü  One Sentence Takeaway:  This great interactive picture from the ground of the new development reminded me of the great honor and responsibility we have as real estate people to finance, develop, and operate buildings that are both symbolic and imperative to our great nation. 

Job Report:  “Disturbing”

ü  Link

ü  Two Sentence Overview:  For the first time in nearly a year we had no net increase in jobs.  Economists were looking for an increase of around 75K, but unemployment held steady at 9.1% with a bad consumer confidence report to boot. 

ü  One Sentence Takeaway:  The importance of job growth cannot be overstated for the nation in general and commercial real estate in particular – this report and all the surrounding data was disheartening. 

Zell’s take on US Real Estate

ü  Link

ü  Two Sentence Overview:  Some great takeaways from Zell as he cites that the volatility we are experiencing in the equity market is largely due to political uncertainty.  Specifically as it relates to buying opportunities in US real estate: low cost of capital and pretend and extend loans from lending institutions has led to fewer buying opportunities in the US and prices for fully occupied assets closing in on 2007 levels. 

ü  One Sentence Takeaway:  On the upside, Sam reminded us that Real Estate fundamentals are all about supply and demand – and in the US, we really have not added any significant supply since 2007. 

Time for Energy M&A?

ü  Link

ü  Two Sentence Overview:  Expect to see more and more oilfield service and equipment providers being bought.  This is something for us all to keep our eyes on with valuations becoming more feasible and seemingly more demand from the larger players.   

ü  One Sentence Takeaway:  Merger and acquisition activity is always a risk for Houston office space absorption and I would underwrite some considerable M&A activity this fall. 

Stats for the Water Cooler:

·         Texas added 688,483 people in the past year, the most of any other state in the nation (Stat)

·         August Consumer Confidence is lowest in 2 years. (Stat)

·         Oil finished the week down $1.45 to $84.05.  (Stat)

·         US Rig Count lost 7, down to 1,968 last week (up 315 from this time last year however) (Stat)

·         Houston is second only to Silicon Valley in year-over-year job growth in the nation with 2.6 % growth (Stat)

·         Retailers are finding shoppers where they live (Stat)

 Houston CRE News:

·         Litton Loan is Sold to Atlanta-based Ocwen for $263.6 million  (Link)

·         Houston adds 5,900 retail jobs (Link)

·         Community Bancorp, LLC signs lease at Williams Tower (Link)

·         Burns & McDonnell Expands at 1700 Younan West Loop (Link)

CRE Cliffnotes (6/28/11)

Much like Greece, or as I like to call the country, “the world’s 21-year old spoiled kid with a credit card problem”, I have been kicking the can down the road with the latest CRE Cliffnote update. Incidentally, in the past two months there has been a strong correlation between the number of CRE Cliffnotes and the number of Greece bailouts. There has not been the same correlation between the Greece vacation schedule (mandatory 8 weeks) and my vacation schedule.

With that, let’s get to it. I sincerely hope the following articles from the past month are of interest and value to you:

Texas is Tops
+ Link
+ Two Sentence Overview: Just a few stats: Texas has added more than 265K jobs since the recession (more than double any of the second place states). 37% of the jobs created since July of 2009 have come from Texas and the Lone Star State is one of only three states that has more jobs now than before the recession began. This deserves a third line: Texas has added 732K jobs in the past 10 years (no other state topped 100K in the same time).
+ One Sentence Takeaway: Tough to deny the correlations between the stats above and Texas having a lower net effective tax rate on businesses combined with a “Right to Work” emphasis. This only makes the secondary markets located in Texas stronger from a fundamental and capital markets standpoint.

…But even job growth in Texas is slowing
+ Link
+ Two Sentence Overview: The US produced a lackluster 54,000 jobs in May. Even Texas is slowing, having the lowest annual growth since November 2010 in May.
+ One Sentence Takeaway: Despite the companies of The Standard & Poor's 500-stock index sitting on more than $960 billion in cash, it seems companies in the US (and even in Texas) are still hesitant to convert cash into jobs in this current climate.

“Growing Smart”
+ Link
+ Two Sentence Overview: I like any combination of the words “company”, “growth” and “hiring” but it is clear that many companies will not immediately take on more space even as they increase revenues and resume hiring. As companies grow they will be focused on strategies to maximize space utilization, both in the amount of space needed per employee and in the effectiveness of the space.
+ One Sentence Takeaway: Even as jobs return to pre-recession levels (in 2013 or 2014) we cannot assume that those same job numbers will equate to the same amount of space demand due to a heavy emphasis on maximizing space utilization.

The New Workplace
+ Link
+ Two Sentence Overview: Good article about the drivers of office space design: 1) Branding (or “recruitment”) 2) Collaboration 3) Mobile Office 4) Technology. The culminating effect of these trends is leading to less SF per employee (this article states a decline from 250 PSF to 160 PSF).
+ One Sentence Takeaway: Recruitment is THE main driver for large Energy companies in Houston (the building/design that will help companies attract and retain top talent) which could mitigate the decline in SF per employee. I am particularly interested in how the Mobile Office will affect demand for office space in the future.

The Rise of the Gulf Coast
+ Link
+ Two Sentence Overview: Move over Atlantic and Pacific coasts, The Gulf Coast is the most economically vibrant of the three US coasts. The port of Houston increased 28.1% in foreign trade this year and the scheduled $5.25 billion widening of the Panama Canal in 2014 is going to be a game changer as the breadth of cargo ships able to make it to the port of Houston will increase dramatically.
+ One Sentence Takeaway: The friendly business environment in the Gulf coast relative to the unfavorable labor and regulatory constraints in the Atlantic and West coast ports is the main driver of the Gulf’s ascendency.

Capital ahead of fundamentals
+ Link
+ Two Sentence Overview: We all know there has been tremendous liquidity waiting on the sidelines ready to pounce on deals. The gentlemen in this video makes a strong argument that pricing is ahead of the fundamentals as both private and public money (US and international) are chasing the same stabilized core assets driving prices to frothy levels.
+ One Sentence Takeaway: Pent up demand has “bid up” pricing in markets (particular in the gateway markets), which could bode well for Houston as investors are pushed towards secondary markets and Texas cities in particular because of the strong job growth.

CRE Cliffnotes (5/9/11)

So, Bin Laden was not on the CRE Cliffnotes distribution list (he did not have internet in his compound, nor do I believe he had any interest in non-cave/”hidden compound” related real estate). There are however, so many questions I have regarding his recent “retirement” and the incredible troops that carried out the mission. To name just a few:

+ Given the decision to bury Osama Bin Laden at sea, could we have at least set up to a dunk tank?
+ Where can I get a SEAL war dog, is it true that they really have “Kanye teeth”, and will my lovely wife let me have one (a SEAL dog, not the teeth)?
+ Was finding the secret Osama compound any easier than finding the “top secret” Houston Exxon Mobile Campus on Google maps?

All kidding aside, I am thankful beyond words for our heroes who carried out the mission and appreciate all our men and women overseas…and their moms.

Let the Office Recovery Begin
+ Link
+ Two Sentence Overview: Friday’s job report was positive showing 244,000 jobs added in April (With an average of 233,000 in each of the last three months). New demand combined with a general lack of new supply should help tighten office markets and help support rent growth in the Gateway and Secondary markets.
+ One Sentence Takeaway: We should all cheer that 1Q 2011 brought the first US vacancy improvement in 4 years, but bear in mind we have a long way to go on the demand side -- If we averaged 233,000 jobs a month from here on out, we would get to pre-recession job levels sometime in mid-2013.

Houston Props
+ Link
+ Two Sentence Overview: Houston has been getting a lot of great publicity lately – and for good reason. Houston is in the top 3 in the US for fortune 500 HQ’s (beating my old home of LA), Fast Company’s City of the year, in top 5 for gross metropolitan product in the US, was the LIFO (last in first out) to the recession party, and finally its state just won the best state for business for the seventh year straight (which may have something to do with a Governor who will send letters to California to get businesses to migrate).
+ One Sentence Takeaway: I may be a little biased, but isn’t it time we officially call Houston a Gateway Market?

Chevron is thinking of paying what?
+ Link
+ Two Sentence Overview: While not confirmed, the WSJ reported that Chevron is considering buying the former Enron HQ for a hefty sum of $380 million. This $309 PSF figure would set a new benchmark in Houston after Brookfield’s bought Heritage Plaza at the end of 2010 for approximately $280 PSF.
+ One Sentence Takeaway: “Trash or Trophies” baby … and the trades that have occurred in late 2010 and early 2011 all point to the pent up demand for the well leased Class A buildings causing some low cap rates and high price tags for the trophy properties in top markets.

Foreign Dough
+ Link
+ Two Sentence Overview: Foreign investment in US Real Estate doubled in 2010 (13.37 billion in ’10 from $5.6 billion in ’09) and this is only the beginning. Investors outside the US (to include sovereign wealth funds) have their eye on US CRE primarily because of its fundamentals with a minimal amount of new supply and rental rates that are trending upwards.
+ One Sentence Takeaway: Initially these foreign buyers were looking at the Gateway Markets, but this foreign cash should begin to find its way into secondary and tertiary markets by year’s end.

Upsurge in Property Sales
+ Link
+ Two Sentence Overview: As indicated in the articles above, office property sales have come on strong in the 1Q of 1011 with investors who are beginning to look for more value. Velocity of sales for assets with minor leasing exposure is beginning to pick up.
+ One Sentence Takeaway: While demand for the Class A properties in gateway markets remains high, maybe this is the beginning of the end to the “barbell effect” as more distress comes on the market, the discount for distress starts to gradually narrow, and the demand for more value add properties picks up.

Thanks for reading. Hope all the moms had a very happy mother’s day and hope you have a great week.

Port of Houston Update

Yesterday for lunch I had the opportunity to go on a boat tour of the Port of Houston hosted by the port authortiy. It was great to meet and hear the port authority's CEO Alec Dreyer as he told the great story of Houston's port. Having been on a few tours of the port of Long Beach/LA. I was impressed with Houston’s port and its trajectory going forward.

2010 Port of Houston Stats:
+ 1st in the U.S. in foreign tonnage for 15 consecutive year
+ 1st in imports for 20 consecutive years and
+ 2nd in U.S. in total tonnage for 20 consecutive years
+ 7,852 ships called
+ 220.0 million tons handeled
+ 1,812,268 TEUs (20-ft. equivalent units)

With a great trend of increased activity in all areas, committed new development, and the widening of the Panama Canal in 2014, the Port of Houston will continue to increase its role as a main driver of economic activity in Houston. More appropriately for readers of this blog, I walked away with a good impression on its increased positive impact on Houston real estate fundamentals in the years to come.

Chevron to purchase 1400 Smith from Brookfield Office Properties

Chevron Tower set to trade

As the recent Wall Street Journal report indicates, commercial office property values are flying high in Houston with 1400 Smith (otherwise known as Four Allen Center) set to be the next record trade for the Bayou city. The Journal reports that Brookfield Office Properties is nearing a close of a deal that would sell the building to its tenant Chevron for approximately $380 million. I had to double check my math, but that equates to a $309 PSF on the 1,228,877 SF former Enron headquarter building. This figure would shatter the recent high water mark of $279.65 PSF Brookfield recently paid for Heritage Plaza. In that deal which closed in December of 2010, Brookfield bought a 83% occupied trophy asset from Goddard Investment Group for about a 6 cap.

Brookfield purchased Four Allen Center for $120 million in 2006 -- a building that will always be associated with the now infamous "crooked E" trademark signage at the front of the building. Many Houston market pros remember the see through empty floors of the building that became synonymous with the market downturn following the Enron collapse.

In a time where we are either seeing "trophies or trash" trade here in Houston it is very interesting to see the trend on prices of the recent Class A trades:

• 
  
  Unilev’s acquisition of Galleria Towers from Walton Street went for $176 million ($162/SF).


• 
  
  KBS REIT II purchase of the 388,142 SF Two West Lake Park from Younan Properties sold for $81 million ($209/SF).


• 
  
  The Opus Group bought Ten West Corporate Center II, a 250,260 SF building, for $45 million ($180/SF).


• 
  
  Wells Core REIT bought the 143,961 SF Westway One from Behringer Harvard for $31 million ($215/SF).
  

At a recent HFF capital markets event I attended I gathered that this trend is here to stay for the short term as captial is seeking a home and Houston has become very attractive to investors with many of the major gateway markets like New York and DC getting priced out. One thing is for certain, for Brookfield, the "E" now stands for "Earnings" as the savvy owner has decided to sell 1400 Smith at an ideal time in the market cycle.