Colliers International to Expand in NY Market

Joe Harbert, a high-profile executive from Cushman & Wakefield has joined Colliers International as president of the eastern region, according to The Wall Street Journal. Harbert’s plan is to recruit new brokers with the goal of doubling the firm’s revenue in the tri-state area to $125 million in three to five years.

Colliers currently has 237 employees in the tri-state area. They plan to invest about $20 million to expand in the region. Businesses in the Manhattan office market leased 7.4 million square feet in the second quarter and 7.9 million square feet in the year-earlier period, according to the report.

Tenant Improvements (TI)

  • The landlord or tenant should retain an architect to prepare a set of plans (known as CDs) describing the TI work. Both parties should approve it.
  • The work letter should be clear and comprehensive. It should specify who pays for the TIs and in what amounts and at what times. TI expenses should be itemized.
  • Two types of landlord TI concessions:
  1. Turnkey – The landlord agrees to pay all costs for the work stated on the CDs, irrespective of the amount. (This does not include changes in the work after the two sides have agreed on a plan).
  2. TI allowance – calculated as an amount per rentable square foot of the premises. The landlord pays the allowance and the tenant pays all costs above it.
  • If the tenant is doing the construction, it must:
  1. Send the CDs out for bids, select the contractor, obtain the permits and manage construction of the work;
  2. Provide payment and performance bonds to ensure that the work is completed in accordance with the approved CDs;
  3. Produce lien waivers from all contractors and suppliers as the work proceeds;
  4. Ensure that as-built drawings are prepared after completion.
  • The work letter should indicate what happens in the event delivery of the premises is delayed due to construction-related issues.

Source: Jeff Bennett – Tenants, Landlords Both Benefit by Planning Improvements

CMBS Delinquencies

Commercial mortgage-backed securities (CMBS) delinquencies rose to a record high of 10.16 percent in June after exceeding 10 percent for the first time in May, according to The Wall Street Journal. The increase is due in part to the maturation of many loans made during the real estate boom.

Debt specialists are still struggling with $76 billion of loans in or near default. However, the delinquency rate is expected to level off or decline as most five-year loans made in 2007 have already matured. CMBS provided more than $200 billion in financing for commercial property in 2007. 

CapitalMalls Asia Establishes $1 Billion Fund to Invest in Chinese Retail Sector

Asian shopping mall developer CapitalMalls Asia Ltd. has set up CapitaMalls China Development Fund III – a $1 billion private-equity fund that will invest in Chinese retail properties, according to Fox Business. The fund has a life of eight years. Its initial assets include CapitaMall Tianfu, CapitaMall Meilicheng in Chengdu, and Luwan shopping mall and office tower in Shanghai. CapitaMalls Asia holds a 50% stake in the fund.

Commerzbank to Transfer CRE Financing Business

Commerzbank, Germany’s second largest lender will transfer its commercial real estate and ship financing business to a restructuring unit aimed at winding down non-core assets, according to The Wall Street Journal. The two portfolios constitute a total volume of $215 billion.

The bank cited uncertain markets, the heightened sovereign debt crisis and increasing capital and liquidity requirements, particularly for long-term financing under the Basel III regime for the decision. Commerzbank will continue to provide real-estate financing to retail and corporate clients. The bank’s retail fund business, CommerzReal, will be integrated into the core bank’s Private Customers segment.

The German government holds a 25 percent stake in Commerzbank.

Burger King Expands in China

Miami-based Burger King will open 1,000 restaurants in China over the next five to seven years, according to The Miami Herald. The expansion is a joint venture with the Kurdoglu family, which runs 450 Burger King restaurants in Turkey and Cartesian Capital Group. There are currently 63 Burger King restaurants in China compared with over 1,400 McDonald’s restaurants in the country.

Burger King is also opening hundreds of new locations in Brazil and Russia. The article notes that in the past year 80 percent of Burger King’s new stores opened in Europe, the Middle East and Africa.

Burger King was taken private by 3G Capital in late 2010. As part of its overhaul, the company is focusing on modernizing restaurants. It recently launched its biggest menu expansion, which includes healthier and trendier selections.

Fairgate at Ballston

Washington Real Estate Investment Trust (WRIT) has acquired Fairgate at Ballston in Arlington, VA for $52.25 million (373.48/sf) in cash, according to The Street. The eight-story (147,000sf) office building is close to Interstate 66 and Ballston Metro Station. It was built in 1988 and is 84 percent leased. The building previously sold for $51.35 million (364.04/sf) in 2006.

Partial Interest Deals

Partial interest deals are transactions in which investors take partial stakes in buildings instead of buying them outright. In 2011, partial interest deals accounted for $9.9 billion (63 percent), of the $15.7 billion in Manhattan office transactions, according to the New York Times. In 2007, when the market was at its height, less than $5.7 billion (19 percent) of Manhattan’s $30.3 billion in office transactions were partial interest deals.

In some of these deals, the owner uses the outside investor’s capital and credit to persuade the lender to restructure the debt. In exchange, the investor receives equity in the property – a process known as recapitalization. Of the 98 Manhattan office transactions over $100 million that have closed since 2010, 40 involved partial interest deals or recapitalizations.

According to the article, three market forces are fueling the partial interest/recapitalization trend:

1. The plentiful supply of capital that investors are eager to place in coveted properties.

2. Maturing commercial mortgages that must be paid off and replaced with new financing amid conservative lending practices.

3. The seller can avoid paying a transfer tax by selling less than 50 percent of the property (combined city and state transfer tax in Manhattan is 3.025 percent – one of the highest in the nation).

Research in CRE

Commercial real estate is maturing as an asset class and becoming increasingly attractive to investors looking to diversify their portfolios. As a result, the demand for dedicated research and analysis is also growing.

The Washington Post reports that CBRE has a research staff numbering 450 worldwide. Furthermore, the growth of data collection services like CoStar permit in-house research staff such as those at CBRE to spend less time on information collection and more time on assessing how the data affects their clients.

The article also indicates that brokerage firms are selecting researchers who are less likely to use the position as a stepping-stone to becoming a broker and more likely to view research and analysis as a long-term career.