Spec Pipeline Growing for Logistics Facilities

For the first time since 2007, more than half of the new logistics projects planned for construction in 2016 will be developed on a speculative basis, according to CoStar Group analysts’ forecast. According to CoStar Group, merchant builders are re-entering the market “with large-scale spec projects, seeking to capitalize on institutional investor appetite for modern bulk-warehouse logistics buildings.”

That appetite is being stimulated by steady GDP growth and increasing e-commerce sales, which resulted in logistics tenants absorbing available space at a higher rate than new space was built in 2015. Rents for light-industrial and logistics space consequently rose 6 percent overall last year, compared to a historical average of just 1 percent annually.

“Spec development is ramping up as build-to-suit construction for major e-commerce supply chains, such as Amazon’s fulfillment and sortation centers, is starting to wind down,” the article notes.

From February 23, 2016 NAIOP Source – Click here to view article.

House Begins Hearings on Tax Reform

Congress returns to the nation’s capital from a weeklong district work period, and will immediately begin work on addressing the need for comprehensive tax reform. On Wednesday, February 24, House Ways and Means Committee Chairman Kevin Brady (R-TX) will hold a full committee hearing focused on the tax code and its impact on the global competitiveness of America’s corporations. The hearing is in keeping with the main arguments advanced by Republicans, in both the House and Senate, on the need for reform of the tax code in order to lower corporate tax rates to make it easier for American companies to compete overseas.

“In the first two months of this year, even more American job creators have been forced to move their headquarters overseas because they simply can’t compete under our broken tax code,” Chairman Brady said. “Our outdated international tax rules and sky-high corporate tax rate continue to create an unfriendly environment that ultimately hurts our economy and American workers. Other countries around the world are also targeting American employers and making it even harder for them to create good jobs here at home.”

Brady’s move highlights a strategic difference between the House and Senate leadership on how to proceed with tax reform. Senate Republican leadership believes corporate tax rates can be lowered only as part of a comprehensive tax deal negotiated with the next presidential administration. Some in the House believe legislation limited to reforming some international aspects of the tax code can be advanced prior to the November elections. The debate is important for NAIOP and its members because many ideas advanced to pay for the lowering of tax rates for corporations involve limiting or eliminating provisions important to commercial real estate. Included among these are efforts to end the treatment of carried interests as capital gains, lengthening depreciation periods for leasehold improvements, and eliminating Section 1031 like-kind exchanges. NAIOP’s government affairs staff will continue to advocate on behalf of the industry as these tax reform efforts and discussions advance.

From February 23, 2016 NAIOP Source – Click here to view article.

Tax Treatment Benefits for Select TI Allowances

Landlords frequently offer a tenant improvement (TI) allowance to help offset the tenant’s cost of fitting the space to meet their individual needs. For tenants who meet certain conditions, special tax treatments may be available.

A Development magazine article, Achieving the Best Tax Results From Tenant Improvement Allowances, details Section 110 of the Taxpayer Relief Act of 1997 and provides examples on financial reporting versus tax treatment, negotiations, and excess allowance – all of which can make a difference in tax treatment – as well as reporting requirements and what is considered a qualified improvement.

Read more in an article written by Jeffrey J. Schragg, partner, BDO USA LLP, in the Winter 2015/2016 issue.

From February 23, 2016 NAIOP Source – Click here to view article.

2016 Outlook: Five Office and Industrial Trends to Watch

Jobs, oil, interest rates and inflation. These are just a handful of the topics discussed by experts from Marcus & Millichap as factors influencing the company’s 2016 U.S. Office & Industrial Investment Forecast. Here’s what these experts identified as five trends to watch this year for office and industrial real estate:

  1. International headwinds and risks of global slowdown and contagion. Although the current growth cycle is beyond the average of 60 months (the U.S. GDP is entering its seventh year of growth), recovery and growth cycles can extend up to 10 years. Declining oil prices are placing additional stresses on the market, yet falling gas prices are a net positive for the economy. U.S. economic outlook is positive; concern is forming over the impact of the overall global economy.
  1. Job creation is steady and broadening. The nation is entering its 65th month of continuous employment growth, and a slight slowdown is anticipated this year (dropping from 2.7 million jobs to 2.5 million). While job numbers rise, wage growth is lagging. Office-using employment comprises half of the job creation, just slightly down from the high point of this cycle.
  1. Limited construction in office and industrial. Based on the 2016 Forecast, office completions are only at two-thirds of what they were prior to the recession. It’s given the sector a big opportunity to recover and drive vacancy rates back down. Office vacancies hover at 14.5 percent at the start of 2016, which is driving up rents. A decline of space per employee has impacted absorption rates, even with job growth. Office construction remains highly concentrated in Houston, San Jose, Dallas/Ft. Worth and New York. Industrial construction is at two-thirds of the last cycle despite e-commerce’s impact and the greater demand for urban-located fulfillment facilities. Dallas/Ft. Worth, Inland Empire, Atlanta and Houston are seeing the highest industrial completions.
  1. Transaction activity is pushing to new highs. Growth in transactions has been steadily accelerating since the end of the recession; at this point, office transactions are at 22 percent above the peak of the last cycle although pricing is slightly down. Growth is driven by solid fundamentals and increased capital, due to investors looking for alternative places than Wall Street to put their money. How long will this continue? Growth extends into both secondary and tertiary markets.
  1. Cap rate compression. Cap rates reversing course and heading upwards are far from a foregone conclusion at this point. Tightening vacancies and climbing rent growth continue to support pricing appreciation for office moving forward. Downtown markets and suburban markets are 8.5 percent and 3.5 percent, respectively, below peak of the last cycle, but both are getting solid lift off of the trough of the market in 2008-2009.

For more facts, figures and outlooks, tune in to the archived webinar on the Marcus & Millichap website (sign-in required), hosted by Al Pontius, Senior Vice President, Commercial Property Groups, and featuring John Chang, Marcus & Millichap Research Services, and Bill Hughes, Marcus & Millichap Capital Corporation.

From February 23, 2016 NAIOP Source – Click here to view article.

Ten Things CRE Firms Can Do to Attract and Retain Millennial Workers

How can the commercial real estate industry attract younger workers? Sperry Van Ness International Corp. recently conducted a survey that “attempts to answer how an industry led by white males, many of whom began their careers before the Internet was open to commerce, can attract diverse young men and women, most of whom had their first smartphones in middle school.” The resulting report, “Gen Y: How Commercial Real Estate Firms Can Attract and Retain Millennials,” presents the following 10 recommendations, along with supporting data and detailed suggestions:

  1. Expand your commission-based recruiting pool. With many top candidates hampered by student loans, the number of individuals who feel they can take on a commission-only job is decreasing.
  2. Create a collaborative work environment through common goals, brainstorming and problem-solving sessions. Bolster this with collaborative tools and workplace office design.
  3. Boost your entrepreneurial spirit by rewarding innovation, supporting risk taking, and encouraging employees to think like owners.
  4. Diversify your recruiting pools, your existing employee base, your leadership and your board of directors.
  5. Ensure that upper management is genuinely ethical, transparent and open to mentorship programs.
  6. Demystify management and create a clear path for advancement.
  7. Highlight the high earnings potential and the training programs available to help millennials succeed.
  8. Provide flexibility in work hours and locations by moving to a results-oriented, “core hours” system and cloud technology.
  9. Incorporate conscious capitalism into your company mission and vision.
  10. Engage in ongoing dialogs with millennials. Establish a coaching relationship with younger employees as opposed to the classic “command and control.

From February 16, 2016 NAIOP Source – Click here to view article.

Deep Energy Retrofits Yield More Than Cost Savings

When the International Monetary Fund (IMF) in Washington, D.C., examined a deep energy retrofit for its headquarters, they considered these factors: 1) Reducing the risk of failing equipment; 2) Avoiding a downgrade in market value; and 3) Bringing the building up to code compliance.

Companies around the globe are exploring similar issues as they weigh the investment of upgrading efficiencies. Deep energy retrofits – or a whole-building analysis and construction process that achieves much larger energy cost savings than a simpler energy retrofit – are yielding more than considerable cost savings: they are leasing more quickly and drawing higher rents.

Last year, the Rocky Mountain Institute released a guide detailing how investors can utilize deep energy retrofits and how they create value for Class A and B office buildings. The guide touches on value elements and how to integrate them into the decision-making process.

See the full list and read more about deep energy retrofits in an article written by Michael Bendewald, manager at Rocky Mountain Institute, and Douglas Miller, senior associate at Rocky Mountain Institute, for the Winter 2015/2016 issue of Development magazine.

From February 16, 2016 NAIOP Source – Click here to view article.

Economic Development Committee Receives Presentation on Proposed Regulatory Fee Hikes

Earlier this week, members of Charlotte’s Economic Development Committee received a presentation from staff regarding proposed changes to certain land development fees.

In 2006, the Charlotte City Council adopted a policy that it would aim for  100% cost recovery on all regulatory user fees.  Shortly thereafter, in the midst of the recession, the City determined it would not be prudent to substantially increase fees on the development industry, and the proposal was shelved.

But during last year’s preliminary budget discussions, staff reminded Council of its nine-year-old policy regarding cost recovery, and recommended that fees go up accordingly.  After REBIC expressed concerns about potentially staggering jumps in the cost of rezoning and land development fees,, the City acquiesced and imposed some less dramatic increases, capping cost recovery at 80%.

As staff is preparing its FY 16 budget recommendations to Council, they are suggesting it adopt a budget that increases most land development and rezoning fees to a level that recoups 100% of the cost of service.  In some instances fees would actually decrease, but in many others, they would go up.  Here are some examples:

Conventional Rezoning (Residential to Commercial) ⇑15%

Minor Conditional Rezoning (3 acre site) ⇑15%

Major Conditional Rezoning (10 acres or 2,500 trips/day) ⇑40%

Commercial Site Development (3 acres denuded, 10 trees) ⇓9%

Commercial Subdivision (23 acres, 80 trees) ⇓13%

Single-Family Subdivision (10 acres, 10 denuded acres, 40 lots) ⇓5%

Staff is making a concerted effort to get in front of those in the development industry who are paying the fees.  Several meetings will be held in March and here is the schedule:

Wednesday, March 9th, 12:00-1:00, NAIOP, Charlotte Mecklenburg Government Center, Rm CH-14

Wednesday, March 9th, 1:30 – 3 p.m., Development Services Technical Advisory Committee (DSTAC), Charlotte Mecklenburg Government Center, Rm 136

Wednesday, March 16th, 11:00-12:00, Greater Charlotte Apartment Association, Charlotte Mecklenburg Government Center, Rm 136

Thursday, March 17th, 2:00-4:00, Charlotte Water Environment Services Committee, 4222 Westmont, Charlotte

Wednesday, March 23rd, 8:00-9:00, Charlotte Chamber Land Use Committee, 330 South Tryon, Charlotte

City Council is expected to vote June 13th on a final FY 2016-2017 budget. REBIC will continue to work with staff and members of the City Council on this critical issue.