Report: U.S. Commercial Real Estate Pricing Growth Cools in Late 2018

Growth in U.S. commercial property prices decelerated in October to the slowest annual pace in 2018 so far, according to a new report by Real Capital Analytics.

The company’s U.S. National All-Property Index was up 6.4% from a year ago. The pace of annual price growth has been gradually slowing since a 2018 high of 8.4% in February, but in fact, price growth as measured by annual gains has been slowing down for about three years, RCA reports.

Year-over-year gains in 2014 and early 2015 were well over 10% each month for all assets, which represented a strong comeback from the recession, when property prices during much of 2009 contracted by over 20% compared with a year earlier. Since mid-2015, annual gains have slowed considerably.

According to the report, easing growth in major U.S. metros placed the largest drag on national prices, presumably as investors perceive that prices in some major markets have bubble-like aspects. For the purpose of the report, major metros include Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C.

Prices in U.S. major metros were growing an average 8.8% year over year at the beginning of 2018, but as of October, that growth was down to 3.1%.

Growth in the non-major metros has also slowed since a high in the summer, though the change is more modest than in the major metros, RCA reports. Prices rose 7.8% year over year in non-major metros in October, down from 8.4% in May.

Apartments are still leading the way in price growth, up 9.6% year over year, but even that property type has seen a slowdown. In April, the annual gain for apartments was 12.4%.

 

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US homebuilding rose in October on a rebound in multifamily housing projects

U.S. homebuilding rose in October amid a rebound in multifamily housing projects, but construction of single-family homes fell for a second straight month, suggesting the housing market remained mired in weakness as mortgage rates march higher.

Other details of the report published by the Commerce Department on Tuesday were also soft. Building permits declined last month and homebuilding completions were the fewest in a year. Housing starts increased 1.5 percent to a seasonally adjusted annual rate of 1.228 million units last month.

Data for September was revised to show starts dropping to a rate of 1.210 million units instead of the previously reported pace of 1.201 million units.

Building permits slipped 0.6 percent to a rate of 1.263 million units in October. Economists polled by Reuters had forecast housing starts rising to a pace of 1.225 million units last month.

The housing market is being hobbled by rising borrowing costs as well as land and labor shortages, which have led to tight inventories and higher house prices. This is making home buying unaffordable for many workers as wage growth has lagged.

The 30-year fixed mortgage rate is hovering at a seven-year high of 4.94 percent, according to data from mortgage finance agency Freddie Mac. Wages rose 3.1 percent in October from a year ago, trailing house price inflation of about 5.5 percent.

Residential investment contracted in the first nine months of the year and housing is likely to remain a drag on economic growth in the fourth quarter. Economists expect housing activity to remain weak through the first half of 2019.

U.S. financial markets were little moved by Tuesday’s housing starts data.

Single-family homebuilding stalls

Single-family homebuilding, which accounts for the largest share of the housing market, dropped 1.8 percent to a rate of 865,000 units in October after declining in September.

Single-family homebuilding has lost momentum since hitting a pace of 948,000 units last November, which was the strongest in more than 10 years.

A survey on Monday showed confidence among single-family homebuilders dropped to a more than two-year low in November, with builders reporting that “customers are taking a pause due to concerns over rising interest rates and home prices.”

Single-family starts in the South, which accounts for the bulk of homebuilding, fell 4.0 percent last month. Single-family homebuilding jumped 14.8 percent in the Northeast and fell 2.0 percent in the West. Groundbreaking activity on single-family homes dropped 1.6 percent in the Midwest.

Permits to build single-family homes fell 0.6 percent in October to a pace of 849,000 units. These permits remain below the level of single-family starts, suggesting limited scope for a strong pickup in homebuilding.

Starts for the volatile multifamily housing segment surged 10.3 percent to a rate of 363,000 units in October. Permits for the construction of multifamily homes fell 0.5 percent to a pace of 414,000 units.

 

Read more on CNBC

 

 

There’s a new plan to stop Millennium Tower sinking — and settle lawsuits

All sides in the Millennium Tower debacle appear to be nearing an agreement on a $100 million-plus fix to stop the 58-story high-rise from sinking further — but at least part of the building’s tilt will probably remain.

“We’re very encouraged by the recent progress that has been made,” said P.J. Johnston, spokesman for Millennium Partners, the luxury condominium’s developer. “We look forward to working with the homeowners and the city to get this all completed as soon as possible.”

Doug Elmets, spokesman for the homeowners association, cautioned that nothing has been submitted to the city yet for review, but that residents are “encouraged by the ongoing progress.”

The latest plan calls for drilling piles into bedrock from the sidewalk on the building’s southwest corner. The proposal would be less extensive and intrusive than the plan floated in April, which called for drilling as many as 300 micro-piles to bedrock through the building’s concrete foundation.

The idea was to stabilize one side of the 58-story structure, then let the other side continue to sink until the building straightened itself. That plan, however, probably would have cost upward of $350 million — as much as it cost to build the tower in the first place.

The new plan by Ronald Hamburger, the structural engineer for the developer, is expected to be considerably less expensive and faster, and without as significant a disruption to the residents.

“Hopefully, it will take out some of the tilt and stop the building from moving entirely,” said one source familiar with the plan, but who wasn’t authorized to speak for the record.

The tower has sunk 18 inches and tilted 14 inches to the west since it opened in April 2009.

The building sits on a 10-foot-thick mat foundation, held in place by 950 reinforced concrete piles sunk 60 to 90 feet deep into clay and mud. They do not, however, reach bedrock.

The repair job is expected to take several months to complete. The timeline for getting started, however, will probably hinge on how fast the parties can get approval of an environmental impact report and the necessary building permits.

Read more on The San Francisco Chronicle

Google is gearing up to buy prime San Jose land for a new tech campus. What now?

As the city of San Jose gets ready to release long-anticipated documents related to the sale of 20 acres of land near downtown, the question on the minds of both boosters of the Google expansion and skeptics is “what now?”

The city of San Jose is on the verge of releasing details of a controversial 17-month negotiation to sell 20 acres of publicly owned land to tech giant Google for a massive new campus near downtown.

Those details, set to be released Friday, are a key milestone, but only the first step of making the Bay Area’s largest city one of the next expansion points for Alphabete Inc.-owned Google, a plan that has been met by community members with both excitement, deep disdain, and as of this week, a lawsuit over transparency.

Now, as the release date of the long-anticipated land sale documents near, the question on the minds of both boosters of the Google expansion and skeptics is “what now?”

First, the end goal: Google has said it wants to build a mixed-use campus that could span as large as 8 million square feet and would include housing, retail, and office space next to transit. Somewhere between 15,000 and 20,000 workers could show up each day at the campus if built out fully.

 

 

Read more on Silicon Valley Business Journal

 

 

 

New SF hotels, WeWork-backed waterfront school among ideas for historic piers

Developer Simon Snellgrove has an idea: A new 65-room boutique hotel just south of the Ferry Building.

The problem: Hotels are illegal on Port of San Francisco land unless voters authorize them.

Snellgrove’s concept is one of 52 responses received by the port to revitalize 13 historic waterfront piers that dot the city’s scenic Embarcadero.

For the past three years, the port has sought public uses to bring new life for the piers, some of which were built over a century ago. The projects have big financial hurdles, requiring millions of dollars in renovations to withstand future earthquakes and sea level rise. But previous projects like the renovated Ferry Building and AT&T Park are a testament to the public’s love — and the lucrative business — of waterfront development.

The port received a diverse mix of ideas, including basketball and tennis courts, art galleries, an Italian Innovation Hub, and an International House of Prayer of Children. Boston Properties, the city’s biggest office owner and majority owner of Salesforce Tower, said it was open to operating nonprofit, maker and research space.

 

 

Read more on SFGate

 

 

 

 

Are food halls a magic elixir for retail owners?

The concept of the food hall has taken deep root in U.S. retail properties, with scores up and running and hundreds in the pipeline.

Though a popular addition for struggling retail properties, celebrity chef Todd English said that without the right approach, food halls are not always the solution for owners. English spoke at the recent Second Annual International Council of Shopping Centers-Baruch College Real Estate Conference, as reported by Real Estate Weekly.

He warned that some food halls are merely “glorified food courts with better options.” He further called food halls a WeWork model, a kind of coworking space that “has to be about more than just food.”

Food halls are a draw because of their perceived authenticity, as local eateries, healthier options and craft breweries edge out standard food court fare (fast food, that is).

While not every food hall is going to feature chef-curated or otherwise expensive options, they have to be creative in some way, English said during the ICSC conference. “It’s not just another great turkey sandwich or croissant, or whatever the latest trend is, it’s something that brings people in.”

For retailers, a successful food hall is thus not a matter of simply setting up a food hall. With the increasing number of food halls, they too need to stand out to be competitive.

 

 

Read more on Bisnow

 

Is Silicon Valley going to change the way we build CRE?

From the end of World War II in the mid-1940s until just a few years ago, there was a surge in productivity throughout the United States economy, giving rise to what has often been called the “productivity miracle.”

Throughout this period, nearly every industry in the US — from retail to manufacturing to agriculture — became not only less expensive, but also much more mechanized and faster, leading to increased efficiency.

One industry, however, failed to come on board with this trend – construction. In fact, productivity in construction has not only not increased, but it is also actually lower today than it was in the late 1960’s.

In other words, the way that most commercial real estate buildings are built hasn’t changed much in the last 50 years or so. The process goes by the name “design – bid – build” – but it isn’t nearly as simple or straightforward as it sounds. First, the developer or owner needs to hire an architect, who drafts a rough design. In order to do this, he or she must bring in various outside consultants, such as structural engineers and landscape architects. Next, the owner puts the design out for bids from various general contractors and then hires one (usually the least expensive bid). From there, the general contractor subcontracts the work out, with the architect and the general contractor working together closely to make sure the project is completed as close as possible to budget and on schedule.

If the system sounds complicated, well, that’s because it is. Having so many cooks in the kitchen, so to speak, often leads to misunderstandings, placing blame on others, or worse. The combination of volatile prices for materials and an observed shortage of skilled labor has created an industry that is primed for disruption.

 

 

Read more on NAI Global

 

 

 

‘Monster in the Mission’ housing proposal back in new form, but with same old opposition

The developer behind a long-stalled mixed-use apartment complex above the 16th Street BART Station in the Mission District has a new plan, but so far it is being met with the same staunch opposition as previous iterations.

Maximus Real Estate Partners, which owns the 57,000-square-foot site at the southeast corner of 16th and Mission streets, has filed a revised design that calls for two 10-story market-rate buildings — one on Mission Street and one on 16th Street — totaling 285 units, as well as 46 affordable units arranged in a row of five-story townhomes along Capp Street.

The affordable units would be given to the city, and the rents spun off from that building, roughly $1.15 million a year, could be used to help subsidize rents in other nearby buildings in the rapidly gentrifying area.

The revised project, designed by Skidmore, Owings & Merrill, also scales back some aspects of the project, which critics have long dubbed the “Monster in the Mission.”

The 163-unit mid-rise on Mission Street would be moved back 15 feet to expand the usable space on the BART plaza by 40 percent. The three buildings would each have a district architectural style — one green tile, one red brick and one wood — to break up the massing and better fit into the character of surrounding buildings, project architect Leo Chow said.

 

 

Read more on SFGate

 

 

Bay Area tops U.S. in new office space, but lags in housing starts

 The Bay Area is a hot place to build cubicles, conference rooms, and office suites. But don’t look for as many hammers pounding out new homes, condos, and apartments.

The region is expected to open 18.2 million square feet of office space in 2018 — tops in the nation and more than New York City and Dallas combined — while home, condo and apartment building has grown only modestly.

More work space, more jobs and more people chasing a limited supply of homes is expected to add more steam to the pressure cooker of the Bay Area housing market.

“It’s encouraging that so many respected employers are investing in Bay Area jobs and immigration growth” said Carl Guardino, CEO of the business-backed Silicon Valley Leadership Group. “But we all recognize that jobs need a place to go home and sleep at night.”

The region created six times as many jobs as housing units between 2010 and 2015, according to a study by the leadership group and the Silicon Valley Community Foundation. The increased housing pressure has forced lower-income workers out of the region at much faster rates than higher paid workers, even as jobs go unfilled.

The run up in commercial development is led by major office openings in the South Bay, according to a survey from real estate data company Yardi Matrix. The big projects in 2018 include the official, complete opening of the 2.9 million square foot Apple Park in Cupertino, Park Tower at Transbay and The Exchange on 16th in San Francisco totaling 1.5 million square feet, and Facebook’s MPK 21, a half-million-square-foot campus designed by Frank Gehry in Menlo Park.

Other major developments underway include the Voyager property developed by Nvidia in Santa Clara, Microsoft and Google projects in Mountain View, the Stoneridge Mall Road project in Pleasanton, and Moffett Towers in Sunnyvale, according to Yardi Matrix.

The real estate data firm estimates that commercial openings in Santa Clara County are up 6.5 percent over the same period last year. The San Francisco and Oakland metro has seen three times as much commercial space open up this year compared to last year.

 

 

Read more on The Mercury News

 

 

NAI Northern California Represents $11.4M Sale of Eureka Safeway

Eureka, Calif – NAI Northern California, the Bay Area presence for NAI Global, the largest commercial real estate brokerage network in the world, is proud to announce the $11.4 million sale of the Eureka Safeway grocery store.

Executive Vice President Doug Sharpe represented the buyer who purchased the property for less than the asking price.

“Opportunities such as these come infrequently: great location, great building, great team. This asset fit perfectly with the unique circumstances presented by the buyer,” said Sharpe of NAI Northern California.

The acquisition of the 49,145 SF Safeway offers the buyer a rare retail opportunity in Eureka as the only national grocery store in town, making it the go-to market. Situated at the northeast corner Harris Street and Harrison Ave., nearly 60,000 drivers pass the store daily.

Because of Sharpe’s professional commitment to relationship building, he was able to bring the buyer and the seller together to reach a mutually beneficial deal. Speaking about the way this deal came together, Sharpe quoted Zig Ziglar, the well-known motivational speaker, teacher and trainer, “‘If people like you, they’ll listen to you; but if they trust you, they’ll do business with you.’”

The Safeway terms include a brand new 20-year absolute NNN lease with fixed rent increases, providing the buyer with an excellent long-term investment that hedges against future market inflation with no landlord responsibilities.

 

About NAI Northern California

NAI Northern California is a full-service commercial real estate firm serving the Northern California Bay Area. Our team delivers technology-enabled commercial real estate services that create value for our clients, industry, and communities.

NAI Northern California is a partner of NAI Global, the largest commercial real estate brokerage network with more than 400 offices worldwide and over 7,000 professionals completing in excess of $20 billion in commercial real estate transactions globally.

To learn more, visit nainorcal.com.