Promus Commercial Real Estate News

October 2011

The Clock Strikes '12
Alan Nevin, London Group Realty Advisors

Special to SVN/Promus Commercial, AMO

We are nearing the close of one of the most confusing years in modern U.S. history and now have to figure out what it is that we have to look forward to in 2012.

Our confusion in 2011 relates to the fact that the Feds keep telling us that we have been in a recovery mode for two years, yet we are gaining few if any new jobs Nationally; our European counterparts are circling the drain; and we have an administration and a congress in Washington that doesn’t appear to understand the seriousness of our problems, much less know how to correct them.

Now let’s turn to 2012 and talk about San Diego. We are a little different from most other places in the U.S. Our economy is stable; we are gaining jobs (probably 15,000-20,000 in 2011). We are gaining population (30,000+ annually) and adding 10,000 households annually. Pointedly, we are adding consumers and space users.

We did not overbuild in the rabid 2002-2006 period, unlike our neighbors in beleaguered Las Vegas and Phoenix.

Our apartment market is highly stable and boasts vacancy rates under 5.0%. In 2012, we will start 2,000+ new apartment units, but they won’t enter the market until 2013-2014 and that will mean a dearth of new product coming on-line in 2012. That should result in concessions disappearing and rents increasing 3-4%. Phoenix and LV, eat your hearts out! And cap rates will remain embarrassingly low.

In the retail sector, we are in amazingly good shape with vacancy rates below 5.0%, with most of the more modern centers sporting 96-97% occupancy. And better yet, there are numerous national chains that are looking to enter the San Diego market. I know that we really don’t need any more hamburger, yogurt, cupcake or women’s clothing stories, but they do want to stake a place in our county and it is only courteous to welcome them here.

The industrial sector is doing surprisingly well, too. The traditional stock of smaller modern spaces in urban settings is staying full. And those same spaces are gradually being converted to retail goods warehousing, office space, storefronts, and often research and development facilities. Better yet, construction of new space has subsided substantially so the inventory is stable. In fact, the low vacancy rates are somewhat amazing when one considers that a substantial amount of the industrial square footage was formerly occupied by the now moribund construction industry.

Finally, the office sector is very, very slowly returning to health as new small businesses are created and existing ones expand. In the "A" space, there actually appear to be space battles by firms eager to have their names atop modern buildings.  It will take another 2-3 years before our office market can be considered stabilized, but it’s working its way there.

So, without appearing too Pollyannaish, I think that 2012 will be a better year for San Diego County. It is possible that we will exhibit good health while the rest of the world wrestles with a tepid recovery. Not forever, mind you, but in the short run.

And 2012 will be a year of heightened political activity with elections coming near. In fact, 2012 may be one of the most exciting elections years in recent memory. Locally we have one of the better set of policy makers we have had for some time. Nationally, the focus will be on the economy. Whether we re-elect or newly elect, it will be on a platform of job creation and economic revitalization. Miracles could happen.

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Maybe Nevin is Right…

Perhaps the biggest surprise and most positive comment heard from multiple high-level lender executives at the recent Western States CREF conference in Las Vegas was their belief that for an extended period of time, they expect commercial real estate investing, through both purchases and lending, will increase significantly.

Jamie Dick, vice president, Newmark Realty Capital – Newmark Realty Capital – returned from the Wynn Las Vegas event to report life insurance companies are ramping up their commercial real estate lending plans for 2012.

“Every life insurance company we met with indicated they continued to want to fund loans this year and expected that their lending budget/goals next year would be larger than this year’s,” Dick says. The 16 life insurance companies Newmark represents in California collectively plan $11.6 billion in mortgage volumes this year. TIAA-CREF alone has committed to funding the largest deals, up to $250 million.

Bank commercial lending is “a mixed bag”, according to Dick, because they continue to face challenges of many commercial loans in default. Commercial mortgage-backed securities lenders are “by far the most challenged lender group,” he says.

“Without exception, CMBS debt providers have pulled back from aggressively funding new loans until they feel Europe stabilizes,” he commented.

However, even with more potentially funding in the pipeline, Mr. Dick warned owners and borrowers to expect longer timelines from start to finish, and to anticipate increased documentation requirements to secure their loans.

“Lenders have made it clear that only the very best assets would ‘get the love’ with the overall marketplace being a ‘have and have-not’ landscape,” he noted.

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Good News…Maybe

According to the San Diego Union Tribune, the monthly Architectural Billings Index for August reached 51.4, up sharply from 45.1 in July. It was last above 50 in March.

Being above 50 indicates a positive economy. Architects, who should be celebrating, are cautiously optimistic.

“What happened in August that caused that uptick, I haven’t a clue, really,” says American Institute of Architects chief economist Kermit Baker. Given the poor jobs report for that month and wild swings in the stock market, his confusion is understandable.

Baker figures the index has to remain above 50 points for at least three months before he will forecast an upswing, and the point level should be 52 to 54 to be sure it’s solidly positive.

“A lot of folks are telling us that they’re sitting on a lot of large projects because their owners can’t get financing,” he said. “It’s become a huge issue…The banks just don’t want to hold real estate loans anymore. I’ve heard that from bankers, too.”

Many local architects are reporting clients expecting a great deal of work for miniscule fees, and are unsure where this ABI report originated from.

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Make Your Office Greener

Not yet sure if there’s benefit to making your office greener? Consider this:

• Over 25 billion cartons manufactured in the US annually are used one time.
• Making recycled paper uses 55% less water and 70% less energy to make.
• If every worker used one less staple each day we’d save over 120 tons of steel.
• Having every commuter car carry one additional person saves 8 billion gallons of gasoline annually.

A greener workplace means you’re helping Mother Earth. Since a lighter ecological footprint translates into more productive employees, we offer the top 10 practical steps for improving your work-related environment.

1. Make it compute – Optimize your computer energy settings (and those on other devices). Shut equipment down at day’s end, since “standby” settings continue using power even when nobody’s there.
2. Digitize – Somewhere along the line the idea of a paperless office disappeared. But the funny thing is that keeping everything digital lowers costs for paper, postage, and handling.
3. Use paper twice – When you do need paper, buy for recycled with a high percentage of post-consumer content and the minimum of chlorine bleaching. Print on both sides of the page, and use misprints as notepaper. Choose printers and photocopiers that do double-sided printing. If your office ships packages, reuse boxes and use shredded waste paper as packing material.
4. Reuse other supplies – Recycling at the curb is great, but also provide markets for recycled materials. Pens, pencils, rulers, markers and other items made from plastics and other items needing an extended life are preferable to one time usage. Use biodegradable soaps, recycled paper/cloth towels, and earth-friendly cleaning products. Also remember that buying in bulk minimizes packaging waste, and the shipping boxes can be re-used. Recycling printer cartridges is often free, or you can bring your empties to a place like Costco for an inexpensive refill.
5. Better commuting – Three out of four San Diego commuters drive alone, leading to gridlock, wasted time, wasted gasoline, and poorly maintained roads. Consider getting a hybrid, electric vehicle, motorcycle, scooter, or using a car sharing service like Flexcar or Zipcar.
6. Recycled clothing – next time you’re shopping for work clothes, check out the local thrift stores. Not only can you find some sharp-looking duds there, but you’ll save money. When you’re buying something new, look for clothes made with organic or recycled fibers and avoid clothes requiring dry cleaning.
7. Home schooling – San Diego is one of the most wired cities in the US, making it a perfect place to take online classes to keep your skills fresh. Plus you can attend the final in your pajamas.
8. Review your workspace – Furniture can be manufactured from recycled materials as well as recyclable. With the economy in its current state there are also many opportunities for picking up office equipment and furniture from used furniture stores or troubled firms. This saves space in the landfill and gives your wallet a break.
9. Break Time – Bring lunch to work in reusable containers and drink from washable mugs (instead of paper cups and sleeves from the local takeout). Use a washable plate, utensils and napkins. If going out, frequent establishments within walking distance. If ordering takeout, having coworkers join you to place a single large order saves gas and packaging waste.
10. Encourage others – Arrange office carpools or group bike commute. Trade shifts and job duties so that you and co-workers work four long days instead of five short ones. Have the office manager purchase fair trade coffee for the break room. Arrange small recycling bins for everyone’s office. Get your marketing department to print brochures and catalogs on recycled paper using soy ink.

Let’s face it – we’re all in this situation together, and the sooner we all make that little bit of extra effort, the better it will be for everyone.

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Who Are We Today? Meet Tony Yousif

Tony Yousif serves as Vice President for Sperry Van Ness/Promus Commercial in San Diego, CA specializing in the sale of investment properties throughout the nation.

He is a part of the Sperry Van Ness Asset Recovery Team and acts as single point of contact for several financial institutions.

Tony is currently working with receivers, banks, and servicers; assisting them with distressed properties. He is responsible for all aspects of pre-marketing, due diligence, financial underwriting, and offering materials in the sale of commercial properties. He has one thing in mind while working with these institutions; to preserve the greatest amount of capital.

He is currently working with the following financial institutions on several properties throughout the nation; Wells Fargo, City National Bank, US Bank, BBVA Compass, Cohen Financial and others. He focuses on providing guidance and ways to restructure or dispose distressed commercial real estate. Tony is also closing deals directly for the FDIC based in Texas.

Tony is a member of several professional and community-based organizations, including the Herb Klein Leadership Round Table, the Urban Land Institute (Young Leaders Group co chair), the state and local board of directors for the California Receivers Forum, board of directors for the Risk Management Association, and board member as community chair for the La Jolla Rotary Club.

Born in Chicago, IL and raised in San Diego, CA, Tony earned a Bachelor degree in Business Administration from San Diego State University.

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