The 2007 Annual Commercial Real Estate Show (2007 A.C.R.E.S.), presented by TriState REALTORS Commercial Alliance experienced another successful event on Thursday, Oct 26, 2007. It's theme was, "Building Bridges, Making Connections".
Besides the exhibitors representing service providers and leading practitioners in the Delaware Valley commercial real estate industry, a big feature was the Corporate Real Estate Executive Panels.
The panel members were primary members of established organizations involved in the commercial real estate industry either as brokers, clients or service providers. Three main topic areas were covered and some key points from the discussion are summarized below...
The Investment Outlook for the Delaware Valley
1. The market is becoming more dynamic and the area is just starting to be seen as a global market center.
2. Where 6 months ago everything worked, in the past 60 to 90 days credit availability has made financing more difficult to do.
3. Global markets have taken up some of the slack.
4. Mezzanine Loans - not much liquidity.
5. Market should strengthen out, but not back to where it was.
6. Price of capital has increased, creating opportunities for well capitalized buyers.
7. High leveraging of upward of 95% is gone for now. Best to expect is 80% or lower.
8. Uncertainty creates opportunities for those who have the capital to take advantage of it.
9. Last 3 years were equivalent to prior 10 years. Pace is still tremendous, but driven by a different buyer.
10. Foreign buyers, using Euro dollars providing a 4-5% discount against value of U.S. dollar.
11. German, Italian and Middle East buyers are most active in area.
12. Fundamentals look good for 2nd half of 2008.
13. A larger % of institutional investors are putting money into real estate.
14. There has been a slow down in last 3 months, resulting in a lag that will benefit the 1st quarter of 2008.
15. Corporate gains will have an effect.
16. When looking at standard B class office property with good location: pricing will be down about 10%, cap rates will be in the 5% area or less.
17. Multi-family properties are still aggressive, much better than most other players. Due in part to Freddie Mac and Fannie Mae being very active in the multi-family arena.
18. Prices may take a little dip, but sellers will hold from market until they can get their price.
Retailers' Site Requirements & Expansion Plans
The panel was represented by a range of site buyers and tenants, that are planning on acquiring (lease and/or purchase) from 5 to 500 sites per year, with sizes ranging from 500sf to over 40,000sf.
1. Some work only with preferred developers within an area, but will of course work with brokers who are representing property that may be of interest. Others not working with anyone specific but preferring established local brokers.
2. All want information to be supplied electronically, with property information, pictures (important), good site plans, maps, parking and demographics tuned to their type of business requirements.
3. Price points were critical.
4. Franchises were especially sensitive to franchise owner's first 3-5 years cash flow requirements during startup, and were seeking aggressive rent reductions for for those first 3 to 5 years to allow location sales to take hold (at minimum first 2 years are critical). Numbers need to work for the franchisees. They are more flexible on the back end to offset the discounting up front.
5. Some franchises require their store owners to remodel every 8 years, so they want 8 year leases.
6. Most of those on panel were looking for community shopping centers or property convenient to the community it will serve; and power centers.
7. Most are not looking for lifestyle shopping centers, feeling that they are too expensive at this point in time and most don't provide the convenience they desire.
8. Some have found their most successful stores to be in the inner city. Ofen working with a reduced foot print.
Office/Industrial - Topic Challenges in Corporate Real Estate
1. Some owners are using brokers to sublet properties.
2. One of the biggest challenges is where labor is difficult to attract and maintain.
3. Looking for "B" class for branch offices, operations and off-shore.
4. Centers are having difficulty hiring when long driving times required.
5. For attracting knowledge workers, you need to be near "center of gravity" of cultural, entertainment, recreation and sports.
6. Technology changes require careful planning and upgrades. Sometimes cost analysis shows that it's cheaper to start over than remodel.
7. Buildings get "tired" after 7-8 years. Often cheaper to move out and start over.
8. 1st priority is parking and phone/communications service.
9. High performance buildings obsolete more quickly.
10. To bring a "tired" building back to state-of-the-art may require putting 25% back in improvements.
11. In 8-10 years you will have to retrofit IT at least once during the time span.
12. Lease terms are critical with flexibility.
13. Many, especially the larger leasers, preferred triple-net leases with flexible lease terms as they felt they could control costs better.
14. Flexible lease terms are most critical.
15. Those that used competitive bidding for leasing and services stated that "the best and final" is when they stop lowering their price.
16. Recompete contracts on a regular basis.
17. Facilities cost is in excess of 10% of lease cost.
18. Tenant improvement allowances were made in to turn-key operations with competitive bidding.
19. LEEDS projects - concern that a lot of people want to put "plaque on door", then nothing happens.
20. LEEDS projects - need to be cost effective up front and over long-term.
21. LEEDS projects - sustainability is key, not plaque or points; developing buildings that will NOT be functionally obsolete as soon.
Keynote Speaker
The event was topped off by a luncheon and keynote speaker, Charlie Pizzi, President and CEO of the Tasty Baking Company. The company and it's Tastykake brand is an icon of Philadelphia and the Delaware Valley. Prior to joining the company in 2002, Charlie was president and chief executive officer of the Greater Philadelphia Chamber of Commerce and prior to that he was Department of Commerce Director for the City of Philadelphia. His discussed how his background in the public service sector was a great asset for working with state and local governmental organizations to help keep the company in Philadelphia, and obtaining public sector financing to move the company to the Naval Shipyard (Philadelphia Naval Business Center) and to implement a state-of-the-art manufacturing and headquarters facility. He pointed out the importance of developing networks in the public sector and effectively leveraging them, stressing that its takes fortitude and patience to work through the details, but the results are well worth the effort.
The TriState REALTORS® Commercial Alliance is the preeminent advocate for the Commercial and Industrial practitioner in eastern Pennsylvania, New Jersey, and Delaware.
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