Fed to Include CoStar Index in Flow of Funds Accounts

CoStar Group’s Commercial Repeat Sale Indicies (CCRSI) will be included in the Federal Reserve’s “Flow of Funds Accounts of the United States” report beginning with the June 2012 issue, according to MarketWatch. The Fed’s Flow of Funds (FOF) accounts analyze economic data on borrowing, lending and investment in various sectors of the economy. The data from the FOF accounts is used for economic analysis and forecasting.

CoStar launched CCRSI in August 2010 to analyze price movements within the $12 trillion U.S. Commercial Real Estate market. CCRSI reports three national price indices each month – Investment Grade, General Commercial and a Composite Index. It also includes price indices for specific regions and property types, including quarterly reports for 10 metropolitan areas. The CCRSI uses repeat regression analysis – a comparison of prices for the same property through successive transactions. CoStar has 1.7 million commercial property sale records in its database, collected over 20 years.

Kaiser to Build at Marlton Square

Marlton Square – formerly know as Santa Barbara Plaza – is a 22-acre retail and residential area located in the Crenshaw district of Los Angeles. According to the Los Angeles Times, it was part of a $1 billion real estate portfolio that defaulted when lender USA Capital, filed for bankruptcy in 2006. A court-ordered stay halted redevelopment until 2010 when the federal trustee allowed the portfolio to be split.

Kaiser, the largest nonprofit health plan and hospital system in the U.S., bought 8.65 acres from Commercial Mortgage Managers (CMM), the primary investor in Marlton Square. The price was not disclosed, but real estate experts estimate the land to be worth about $40/sf. Kaiser plans to build two medical office buildings there.

In addition to Kaiser, an apartment complex for seniors was completed last December on 2.25 acres of Marlton Square and CMM is in negotiations to sell the balance of the property developers of a 120,000sf retail center.

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.