Popularise

Popularise is a website that gives the public a chance to vote on tenants for available retail spaces. Launched last December by Ben and Dan Miller, Popularise places giant black posters asking, “What Would YOU Build Here?” on available storefronts. Suggestions are submitted online by potential customers or business owners. Votes can be for a type of establishment or a specific business on any property listed.

According to The Washington Post, Popularise has four listings in DC, including one that has now been leased with the help of Popularise – a building on H Street NE next to the Rock and Roll Hotel. The service will have to compete with the neighborhood meeting process which some believe has more standing because it is primarily composed of people from the immediate vicinity. Furthermore, the most popular business is not necessarily the tenant willing to pay the highest rent, nor is it necessarily the most viable candidate for that location. Real estate professionals’ insight may at times trump popularity.

Percent Rent in Retail

A percent rent provision in a retail lease requires the tenant to pay percent rent to the landlord if the tenant’s annual gross sales exceed a certain breakpoint. If the breakpoint is calculated as the ratio of annual base rent to percentage, it is called a natural breakpoint.

(natural breakpoint) x (percentage) = annual base rent

or

natural breakpoint = (annual base rent)/(percentage)

For example, if a percent rent clause stipulates that the tenant should pay four percent of annual gross sales over a natural breakpoint and the annual base rent is $50,000, then the natural breakpoint is 50,000/0.04 or 1,250,000. The tenant is obligated to pay four percent of its annual gross sales to the landlord as the total rent if the annual gross sales exceed $1,250,000. Otherwise, the base rent applies.

China’s Wanda Group to Acquire AMC Entertainment

The New York Times reports that Chinese tycoon Wang Jianlin’s will pay $2.6 billion to acquire AMC Entertainment  – North America’s second largest movie theater company. AMC will be integrated into Mr. Wang’s Wanda Group – a made in China global brand. The deal will likely be approved by U.S. regulators.

In addition to the $2.6 billion designated for the acquisition, Wanda Group will invest $500 million in AMC in North America. Mr. Wang plans to keep AMC’s management in place with long-term pay incentives and he plans to invest heavily in renovating older American theaters in an effort to bolster revenue. Much of the cash for this deal will come from China’s state-controlled banks.

Wanda Group has experienced 30 percent growth in the last year and Mr. Wang expects that by 2015 it will have overall revenue of about $30 billion.

Dollar General

RealEstateRama reports that The Boulder Group – an investment real estate service firm – represented the buyer in the sale of a triple net leased Dollar General property in Kansas City, KS for $1,174,000. Dollar General leased the 9,100sf store for 15 years. It was built in 2012 and sits on a 1.03 acre parcel. Dollar General has over 9,300 stores nationwide and is rated BBB- by Standard & Poor’s.

Women in Commercial Real Estate

Success and Satisfaction of Women in Commercial Real Estate: Retaining Exceptional Leaders – a white paper issued by the Commercial Real Estate Women (CREW) Network includes interviews with senior commercial real estate executives related to some of the findings from CREW Network’s 2010 benchmark study: Women in Commercial Real Estate. That study found that more women are entering the field of commercial real estate, however, pay and promotion remain obstacles. The interviews in the white paper highlighted two misconceptions about women in commercial real estate:  1) That compensation is not as important to women as it is to men and 2) that women are more risk averse.

Washington’s 14th Street Corridor

The New York Times reports that in the next 24 months, almost every block in a one-mile stretch of 14th Street in Northwest Washington will have a new or renovated mixed-use building. Once the projects are completed, this section of 14th Street between Rhode Island and Florida Avenues will have 1,200 additional housing units and 85,000sf of additional retail space. The 2008 financial crisis slowed the redevelopment of this area but the projects are moving forward now.

  • UDR, is working on a project at the northern end of the strip that will contain 255 residential units, a rooftop pool, and 16,000 square feet of retail space.
  • Louis, a project by The JBG Companies at 14th and U Streets will have 268 luxury apartments, 25,000sf of new retail space and a tiered roof deck.
  • PN Hoffman is transforming the Verizon building at 1401 R Street NW into 34 upscale residential units.

Record-breaking Walgreens Sale

A 16,016sf 24-hour Walgreens in Las Vegas recently sold for $27.8 million ($1,736/sf) making it the highest-traded single-tenant net-leased drugstore in the US, according to a GlobeSt.com report. The property is located at 3025 South Las Vegas Blvd., two blocks from the Las Vegas Convention Center. It was built in 2001 and sits on 1.61 acres. A foreign fund purchased the property from a local real estate investment partnership.

At the time of purchase, Walgreens was in the 11th year of a 20-year lease. Ray Germain, the seller’s representative, negotiated an early extension for ten additional years, making the purchase more desirable

Other transactions that come close in value: In 2005, at the height of the market, a drugstore in Miami traded for $19.5 million and in August 2011, a drugstore in For Myers, FL sold for $1,466/sf, according to the report.

Housing Prices Soar in Hong Kong

Hong Kong real estate rates have risen by more than 50 percent since 2009 due to high demand and constricted supply. The Economist reports that the government in Hong Kong has a monopoly on land and the amount of land it auctions off determines in part, the level of new construction. Home completions in the 1990s averaged 23,000/year. In recent years, that figure is in the range of 10,000 to 11,000/year.

Office rents in Hong Kong are at $160/sf and new home prices are 55 percent above London rates. Vacancy rates are around 4 percent. The Economist’s quarterly home-price index compares prices in 21 economies. The March index placed Hong Kong property at 58% above “fair value” (defined as the long-run average ratio of prices to rents and incomes) making Hong Kong second only to Singapore as the most overvalued property market in the index.

Chicago Pit

The planned 150-story Chicago Spire remains a pit in the ground four years after construction stopped due to financing challenges and the global recession. The two-acre parcel on which the Spire was to be built is located in a coveted area along Lake Shore Drive and near the mouth of the Chicago River.

The now defunct Anglo Irish Bank Corp. filed a $77 million foreclosure lawsuit against Irish developer Garrett Kelleher claiming default. The Wall Street Journal reports that Kelleher paid $64 million in 2006 for the site. Last year, the city assessed the property to be worth $1.67 million and the market value is estimated to be $16.7 million. All in all, Kelleher invested as much as $150 million in the project.

Anglo Irish Bank Corp. was one of the Irish banks brought down by reckless lending in the property boom. Ireland’s National Asset Management Agency (NAMA) took on the Chicago Spire debt in 2010 from the nationalized Anglo Irish Bank Corp. and is now responsible for paying the property expenses (expected to be close to $3 million by the end of this year). NAMA owes about $82 million in principal and interest on this debt.

According to the article, the foreclosure proceeding is complicated because it involves other players such as Lorig Construction, which is seeking $512,000 in repayments. In Illinois, mortgage holders like NAMA do not automatically have first priority to be repaid over lienholders such as Lorig. A trial would establish the order of claims. If a settlement deal is worked out without litigation, then NAMA could request a sale of the property. However, the property is still owned by Shelbourne Development (Kelleher’s firm), and his firm may resist the sale.

Bank Failures

CoStar reports that banking regulators have closed six banks in the past two weeks. Commercial real estate exposure was a major cause of the failures. The six banks have total combined assets of $1.5 billion and they were holding $159 million in distressed commercial real estate assets at the end of 2011. The failures are expected to cost taxpayers $283 million.

In the first four months of 2012, the bank closure rate dropped to 5.5/month, compared with 7.7/month in 2011, according to data from Trepp, LLC. The FDIC expects 50 to 60 failures in 2012. In 2011, 92 banks failed and in 2010, 157 banks failed.

The fallen six:

  1. Palm Desert National Bank, California
  2. Security Bank, Florida
  3. Harvest Bank, Maryland
  4. Bank of the Eastern Shore, Maryland
  5. Inter Savings Bank, Minnesota
  6. Plantation Federal Bank, South Carolina