Nareit® is the worldwide representative voice for REITs and publicly traded real estate companies with an interest in U.S. real estate and capital markets. Nareit’s members are REITs and other businesses throughout the world that own, operate, and finance income-producing real estate, as well as those firms and individuals who advise, study, and service those businesses. National Association of Real Estate Investment Trusts® and Nareit® are registered trademarks of the National Association of Real Estate Investment Trusts (Nareit).
Local and regional banks are making more loans on apartment properties, in some cases significantly more. In one surprising example, the busiest construction lender in the U.S. in 2017 was Bank of the Ozarks, according to Real Capital Analytics (RCA), a New York City-based research firm.
“A smaller bank, it has established itself in a niche to take on larger assignments,” says Mitchell Kiffe, co-head of national production for the debt and structured finance group at CBRE Capital Markets.
Banks are continuing to pour money into apartment projects, keeping the total number of units under construction high. The new developments will continue to stress the supply/demand balance in a growing number of apartment markets where vacancy rates are beginning to creep up and rent growth is slowing down.
Lots of loans by regional banks
Banks provided 71 percent of all construction financing in 2017, according to data from RCA. Regional and local banks continue to gain market share and had the largest market share last year—33 percent of the construction loans made in 2017. Smaller banks continue to make most of the multifamily construction loans under $30 million.
“Regional banks are still searching for yield in this flat yield curve environment… commercial real estate lending is an attractive alternative,” says Justin Bakst, director of capital markets with research firm the CoStar Group.
Top lenders include banks such as Salem Five, which is winning bigger deals in the Boston area, including 10 Shipyard Drive and Hingham Moorings South. Fulton Savings Bank also just financed a major project in Philadelphia.
The market share of the large national banks has been on the decline, falling from 45 percent in 2015 to 28 percent in 2017. “Larger banks have faced increased regulatory pressure from the likes of Dodd Frank and Basel 3,” says Bakst.
“Some of those larger banks may only have been using these regulations as a reason they could quote to their customers for not doing more construction deals so they could keep their exposure in those sectors that may concern them in check,” says Thomas Wise, managing director of client services at Trimont Real Estate Advisors, a real estate asset management, due diligence and servicing firm.
For typical construction loans, from $20 to $60 million in size, banks now offer floating interest rates ranging from 275 to 325 basis points over LIBOR. “Occasionally we see a spread seems on the low side,” says Kiffe. “Maybe the market would be 25 basis points or more higher… Some of the little banks are not as deep into the market.”
Banks continue to prefer to make recourse loans, in which the bank has a claim on the borrower in case of a default. Non-recourse loans are also available, though they are often smaller in size, often covering 55 percent to 60 percent of the value of the property. “A lot of our clients continue to want non-recourse loans,” says Kiffe.
Fundamentals still strong
Banks are also highly conscious that developers are building more new apartments in some cities than the local markets can absorb. “Urban infill markets have seen a lot of supply,” says Kiffe. That’s beginning to push the vacancy rates higher in some places. “Net effective rents probably have not achieved the pro forma estimates set for many projects,” Kiffe notes.
The drop in construction starts has been slower to materialize than many expected. “There continues to be strong demand for rental housing,” says Kiffe.
San Jose, the capital of Silicon Valley, is home to a large community of independent workers who benefit from an abundance of remote jobs available in the area. After all, the affluent tech companies headquartered in the city and its surroundings provide ample opportunities for whoever wishes to grab them. In addition, freelancing can be quite lucrative: according to Time magazine, the average hourly rate of a U.S. freelancer is $31, while 9-to-5 workers earn about $27 an hour. Although digital nomads don’t have to go to a traditional office every day, they do need a place to conduct their work. Some are fine working in the comfort of their own homes, but some might want to find a more unconventional workspace. Coworking hubs are one option; coffeehouses are another.
In our previous articles, we revealed which coffee shops are likely to be a good fit if you want to get work done in San Francisco, Austin, and Jacksonville. Today, we are going to explore the San Jose, Calif., coffeehouse scene and present a selection of freelancer-friendly places ideal for caffeine-rich work sessions. Read on to discover where you can camp out with your laptop.
Peet’s Coffee
Founded in 1966 by Alfred Peet, who was nicknamed “the godfather of gourmet coffee in the U.S.,” Peet’s Coffee is a staple on the Californian market. The specialty coffee roaster and retailer has a strong presence in San Jose, operating 10 coffee spots spread out all over the city. All of them have a similar, rustic-modern aesthetic, featuring a warm, welcoming ambiance, which is perfect for you to focus on your projects or to strategize with your partners. Most places have both indoor and outdoor seating, ranging from wall or window seats and two-person wooden tables to communal tables. However, it’s probably a good idea to bring your laptop fully charged—there’s a limited number of outlets available.
Philz Coffee
A San Francisco-based coffeehouse chain, Philz Coffee operates one location in San Jose, at 118 Paseo de San Antonio Walk. Renowned for its drip coffee and its cozy atmosphere, the coffee shop is ideal for days when you don’t need any stress in your life. Laptop-bearing customers are a daily sight, so you’ll feel right at home among other remote workers, provided you find a seat—the place is packed sometimes. This coffee spot has an unpretentious, laid-back look, with lots of natural light and a decent amount of seating for its size. Inside, you can claim for yourself a comfy couch, an armchair or a two-person table. There’s also an outside patio, in case you want to bask in the sunlight while you tackle your tasks.
Vitality Bowls
A national franchise specialized in açaí bowls, Vitality Bowls operates 30 locations in California alone, three of which are in San Jose. Hungry digital nomads will be thrilled to find a cool, work-friendly environment where they can squeeze in some work and enjoy a colorful meal in the meantime. To your delight, all locations provide free WiFi and have plenty of outlets in plain sight, so you won’t risk running out of battery right when you need it most. Boasting a youthful, hipsterish vibe, Vitality Bowls shops provide both indoor and outdoor seating. You should keep in mind that the tables are close to each other, and so therefore there isn’t much privacy, but apart from that it can a good place for a remote office.
Caffe Frascati
An Italian coffee house located right in the heart of downtown San Jose, Caffe Frascati is a spacious place with an intense retro vibe. A piano in the front, a photo gallery on the wall, a huge window that allows plenty of light to get inside, and a comfy seating area: all these will make you feel like you’ve traveled to Europe. Café Frascati is outfitted with plenty of tables lined up against the walls, but if you want more intimacy, you can grab a seat on the mezzanine level, designed to resemble a living room. The place has a decent amount of charging ports where you can plug in your laptop, and provides free WiFi to its customers. Boasting a chill ambiance, it’s a great spot for a productive work session.
B2 Coffee
If you don’t know where to meet up with your team and discuss your business endeavors, then you can head over to B2 Coffee. Part of the San Pedro Market, this warehouse-style coffee shop has an open space layout and a work-friendly ambiance, especially fit for group work. The place provides plenty of space for freelancers to sit, plug in, and conquer their tasks. There are large communal tables, semi-private booths, stools, high-tops, benches, and comfy chairs—all waiting to be claimed. On the downside, the number of outlets is limited, and it can get pretty loud, so it’s best to have a pair of headphones with you.
Roy’s Station Coffee & Teas
Located on the site of a former gas station, Roy’s Station Coffee & Teas is a small, but inviting coffee shop in the heart of San Jose’s Japantown. Featuring exposed brick walls, complete with metal tables and chairs, the place has an industrial-chic ambiance and a hipster vibe. Inside, there isn’t much space, only a few regular tables and a side table outfitted with outlets, but it can accommodate a few independent workers. Luckily, there’s a larger outdoor patio where you can squeeze in some work while sipping your coffee. A strong plus for some, the coffee shop is pet-friendly, so feel free to bring your beloved dog with you.
Forager
A coffee shop, a taproom, a workspace, a family-style eatery, and an event space: Forager can be whatever you want it to be. Located in the SoFA district, on the site of the former billiard hall at 420 South 1st St., it can be a veritable haven for digital nomads—especially for claustrophobic ones. A massive, barn-like place with an open-plan layout, it has a very breathable setup, with tables spread apart from each other. Featuring exposed brick walls, a high, unfinished ceiling, and hanging lights, Forager boasts a very relaxing, yet stimulating vibe. Once inside, you can easily lose track of time and spend hours on end immersed in your tasks. The coffee house is filled with huge communal tables, but there are also some bar seats and a lounge area outfitted with comfy couches. The background noise level is decent, the WiFi signal strong, and, if you’re lucky enough to grab a seat near a wall, you’ll be in reach of an outlet, Yelp reviewers say.
Dolce Bella Chocolates & Cafe
A quaint place located at 5325 Prospect Road, Dolce Bella Chocolates & Cafe prides itself on its homey, relaxing ambiance. Spacious and quiet, it can be a productivity inducing workspace for freelancers, if they don’t get distracted by all the sweets available! Filled with small dark-wooden tables with padded chairs, the coffee shop has plenty of space for you to get some work done or even host a business meeting. Furthermore, there’s a decent amount of power outlets spread throughout the café, in case your laptop’s battery is about to let you down.
Yeganeh Bakery & Kafe Unik
Don’t be intimidated by its long name: Yeganeh Bakery & Kafe Unik, “the first and only all-natural whole wheat Sangak bakery” in the city—as stated on its website—is a perfect spot for remote working. A large place, it has two rooms: a lively one in the front, for when you don’t mind working in a noisier environment, and a quiet one in the back, ideal for the days when you really have to focus on what you’re doing. Located at 3275 Stevens Creek, within walking distance of Santana Row, it has a rustic-industrial look and a hipster, yet unpretentious ambiance. In terms of seating options, the place has plenty of large, dark-wooden communal tables, as well as smaller, more intimate, two- or four-person ones. There’s also a small outdoor terrace, in case you’d rather work outside. Last but not least, the WiFi signal is strong and the food is delicious, according to Yelp reviewers.
Vero’s Coffee Bar
Located inside SoFA Market, Vero’s Coffee Bar is a family-owned coffee shop active on the San Jose market since 2014. Part of a larger food court, it might not be a good fit if you want to spend hours on end working without being disrupted by anything. It is, however, a good spot to grab a hot cup of coffee and use the free WiFi connection to send that dreaded email you keep postponing.Boasting a cool, modern-industrial aesthetic, the food court welcomes its guests with large wooden communal tables and three-person tables. There’s also an outdoor terrace outfitted with wooden benches and high-top tables, if you want to take in some fresh air and get some work done at the same time.
Chromatic Café
Chromatic Café is a cute, well-lit coffee shop located at 17 North 2nd St., within walking distance of St. James Park. Designed more as a drop-and-go place, it has limited seating: only four tables and some stools by the window. However, there are a few outlets available, so it can be a good remote office for freelancers who want to minimize distractions. The place has a warm, uplifting ambiance, enhanced by the airy layout and the luscious green plants on the shelves. It’s a pet-friendly place, so you’re welcome to bring your dog. On the downside, the café closes at 3 p.m., which might be inconvenient for some.
Hub’s Coffee
Hub’s Coffee is a family-owned coffee shop that aims to serve as a meeting point for the local community. Located at 630 Blossom Hill Road, the place has a rustic, homey feel, and a non-corporate vibe which will probably be appreciated by independent workers running away from the traditional 9-to-5 office setup. Inside, you’ll find plenty of small, dark-wooden, two-person tables, plus a couch at the back and some window seats. Outside, there’s a small patio where you can bring your dog. The ambiance is rather quiet, so you can focus on your tasks or brainstorm ideas without being easily distracted. If you need to take a break you can grab a board game from the bookcase or you can join the next open mic night.
Crema Coffee Roasting Co.
Located at 950 The Alameda, Crema Coffee Roasting Co. seems to be a favorite among coffee-loving students and digital nomads—at least according to Yelp reviewers. A cute and quiet coffee shop, the place is filled with laptop-using customers, who turn the space into their personal, unconventional workspace. The spacious setting offers plenty of seating arrangements, varying from large group tables and couches to small, intimate round tables that can accommodate up to three people. There’s also a cute outdoor patio, filled with two-person tables, if you want to work outside. The WiFi, however, can be spotty at times, Yelpers say.
The Aquarium of the Pacific, The Queen Mary, Rosie’s Dog Beach, the Naples Canal—and a small, but growing community of freelancers: these are the main highlights of Long Beach, Calif. Over the past 15 years, the wave-less charter city has registered a slow, but steady increase in its numbers of remote workers active. According to Paychex, their ranks rose to over 5,000 between 2000 and 2016. The question is, where do these freelancers work from? Which are the Long Beach coworking spaces that await their arrival?
One of the most diverse cities in the U.S. in socio-economic, cultural, economic, household, and religious terms, the Aquatic Capital of America is not just a weekend escape. Beach-loving digital nomads, solopreneurs, creatives, and even startup owners can discover here a welcoming community of like-minded professionals who work relentlessly on their goals—and sunbathe in their spare time.
So far, we’ve analyzed some of the best coworking spaces in Seattle, Indianapolis, Charlotte, and Columbus. Now it’s time to head over to Long Beach and discover the coworking hubs where you can camp out all day long—or even better, all month long.
Ironfire
Recently opened, Ironfire is a sleek, minimalistic shared office space located at 4195 North Viking Way. Wishing to provide the optimal environment for personal and professional growth, this entrepreneurial hub welcomes results-driven freelancers, startup owners, and forward-thinking entrepreneurs with a friendly, yet professional ambiance. The collaborative workspace is outfitted to accommodate every need, by offering comfortable and fully equipped work, meeting, and event spaces.
Membership packages are flexible, ranging from the usual day passes, dedicated desks, and private offices to part-time, full-time, and two-day plans. Depending on your goals, you can rent small, six-person meeting rooms, or larger, 40-person or 84-person rooms fit for hosting seminars, conferences or training sessions. Ironfire’s perks include convenient tabletop outlets and charging ports, ergonomic furniture, private call booths, printing services, fast Wi-Fi, 24/7 biometric access, and exclusive local discounts.
Work Evolution Laboratories
Launched in 2012, Work Evolution Laboratories is a staple Long Beach coworking space, as it’s the first entrepreneurial hub to open downtown. Located on the eighth floor of the historic Pacific Tower at 235 East Broadway, this eclectic, warehouse-style shared workspace values collaboration, innovation, and education above all else. The coworking hub positioned itself from the very beginning as a community of like-minded innovators, strategists, influencers, entrepreneurs, startups, visionaries, and digital nomads.
Networking, and knowledge- and resource-sharing are highly encouraged, but if you wish to be left alone you can get the privacy you desire—especially if you’ve got headphones on. In terms of membership, the place offers all the standard options: day passes, communal tables, dedicated desks, and private offices. Members benefit from free coffee, printing services, filtered water, and conference room access, but the main highlights are the workshops and the networking events organized. When you’re not busy working, you can admire the artworks on display, play ping-pong or try your luck at the poker table.
UpLAB
Located at 6082 Atlantic Ave., UpLab is a creative coworking space and community design studio that aims to revitalize the north Long Beach area. The hub is designed to serve as a think tank where local freelancers, creatives, artists, remote workers, and visionaries can get together and find the best ways to create a flourishing neighborhood.
A cross between an art center, a shared workspace, and a community center, UpLAB Long Beach is a good fit if you enjoy working in a creative and nurturing environment where you can get to know and share your ideas with other members. You can either grab an unreserved seat or rent a dedicated desk—both options include access to all the amenities available. Be aware, though, that the coworking studio might ask you to get involved in various projects, such as helping with the façade design or with the Christmas decorations.
WTC Workspaces
Conveniently located within the iconic One World Trade Center, WTC Workspaces occupies the entire eighth floor of the 27-story skyscraper. Dedicated to providing concierge-level services to its members, this entrepreneurial hub boasts a friendly, yet professional atmosphere ideal for intense work sessions.
From executive office suites, hot desks, and temporary offices to conference rooms and virtual office plans, the coworking space can accommodate any demand. So, whether you just want a business address or an unconventional workspace, there’s an option tailored to your needs. When it comes to perks, WTC Workspaces offers phone booths, conference rooms, fruit water, micro-roasted coffee, premium tea, and collaboration spaces. The surrounding areas also have many attractive dining options—just in case all those tasks have helped you work up an appetite.
Regus
Yet another coworking chain, Regus operates only one coworking space in Long Beach, within Landmark Square. A sleek and minimalistic place outfitted with modern, ergonomic furniture, the hub offers scalable remote offices for hard-working digital nomads and small business owners.
You can choose to sit at a hot desk in the communal working area, to grab an interior or window office, or, if you need more space, to rent an office suite. In addition to the usual perks provided by most coworking spaces, you’ll benefit from exclusive access to the Regus Marketplace program, which offers various discounts from partner brands.
Office Space Anytime
Located in the Bixby Knolls neighborhood, within the Long Beach Towers, Office Space Anytime is a hip and cool coworking hub that aims to attract startup owners, solopreneurs, and small businesses. Boasting a minimalistic aesthetic, the place is outfitted to accommodate both solo workers and team players focused on professional growth.
The main strong point of this collaborative workspace is its ability to house companies with more than 50 employees, by providing customizable private offices for them. Smaller teams can rent one of the 42 private offices available, while freelancers working alone can find their spot at one of the open seating tables. Once a member, you get to enjoy all the amenities available, including 24/7 access, mail and package handling services, janitorial services, in-house events, and front desk services.
Premier Business Centers
One of the leading national shared office space providers, Premier Business Centers has a strong presence in the city. The coworking chain has no less than four coworking spaces in Long Beach, conveniently located within Park Tower, Kilroy Airport Center, Oceangate Tower, and the 444 West Ocean building. While other collaborative workspaces might try to charm hip, young professionals, this company seems to appeal to a more mature audience that appreciates a more corporate-like environment.
Regardless of where you choose to go, all coworking spaces offer hourly, daily, and full-time offices, as well as virtual office plans, executive suites, meeting rooms, and conference rooms. The amenity package is the same in all locations and includes high-speed broadband Internet connection, telephone answering and voice mailing services, mail handling and distribution, as well as reception and secretarial services.
P3 Office Lofts
Opened in August 2017, P3 Office Lofts is a creative office space located in a 1924-built restored office building in the heart of Downtown. Boasting an industrial-chic vibe, this coworking hub tries to attract digital nomads searching for a place to develop strategies and plan their career paths.
The place has a communal area where you can bring your team and hold a brainstorming session, but it also provides semi-private dedicated desks and private offices. Members benefit from free water and coffee, copy and scanning services, two hours of free parking, and conference room use.
WeWork
It probably doesn’t surprise anybody that WeWork is present in Long Beach. However, it’s a fairly recent addition to the scene. The coworking giant has one hub in this Californian charter city, at 100 West Broadway, which opened just last year. With a rustic aesthetic and a homey feel emphasized by the wooden furniture and the woven string-art installation, this collaborative working space is ideal for those who wish to lose themselves in their tasks.
Freelancers looking for a cool remote office to work at can grab a hot desk or a dedicated desk, while startup owners searching for an easily scalable office for their growing teams can rent a private office—some can seat up to 50 people at a time. Once you decide to become a member, you get full access to all the amenities available, from cleaning services and fruit water to micro-roasted coffee and professional events. The greatest perk of all, however, is the opportunity to get to know the other members.
Non-bank real estate lending become much more prominent in the wake of the financial crisis as banks pulled back dramatically from this asset class, which played such a large role in causing the crisis. With the U.S. government and regulators injecting hundreds of billions of dollars to avoid a collapse of the financial system, banks and elected officials were understandably cautious about seeing banks return to anything but the safest and most predictable types of real estate loans.
In the 10 years since the crisis began, many non-bank lenders have grown into substantial businesses. Their level of professionalism ranges widely. What about the next 10 years? This article makes 10 predictions about where our industry is going.
Jan Brzeski serves as managing partner and chief investment officer with Arixa Capital Advisors LLC, a California-based private real estate lending and fund management firm.
Nareit® is the worldwide representative voice for REITs and publicly traded real estate companies with an interest in U.S. real estate and capital markets. Nareit’s members are REITs and other businesses throughout the world that own, operate, and finance income-producing real estate, as well as those firms and individuals who advise, study, and service those businesses. National Association of Real Estate Investment Trusts® and Nareit® are registered trademarks of the National Association of Real Estate Investment Trusts (Nareit).
To cope with demand, once a city runs out of space to grow, it starts expanding in nearby areas. New developments emerge, overlooked neighborhoods get repositioned, and suburban communities get revamped. All these changes pose both opportunities and challenges for the real estate industry, which has to adapt to the new market conditions.
Starting from the hypothesis that each state has a different real estate scene, we’ve launched the Expert Insights series. Comprising a set of Q&A interviews with industry professionals from all over the country, our series aims to help you better understand the dynamics of each market.
Cincinnati, a Flourishing Real Estate Market
Derek Tye, The Tye Group
Cincinnati, Ohio, a city of roughly 300,000 citizens within a large metropolitan area, is experiencing a real estate boom. Real estate investment firm HomeUnion has named The Queen City of the West the second-best market for single-family rental home investors in the U.S. The economy of the fastest-growing major city in the Midwest benefits from a healthy business scene, aided by the Fortune 500 companies headquartered here. As a side effect, these companies also drive up housing demand.
For this episode of our Expert Insights series, we’ve reached out to Derek Tye, president of The Tye Group, to tell us more about the Cincinnati real estate scene. Former president of the Southern Ohio Association of Realtors and the Montgomery Ohio Chamber of Commerce, Tye has a proven record of success. In 2017, for instance, he closed $30 million in transactions. Today, he reveals a few insights regarding new developments in the area and the impact company relocations have on the local real estate market.
Q: How did you end up working in this field and what drew you to it?
A: I have been working in the real estate business for over 14 years. I got into it after watching commercial real estate transactions from the commercial banking side at U.S. Bank. I realized that the guys on the other side of the table, who were working directly with the buyers and the sellers, seem to be having more fun and making more money. That’s what originally drew me to this. My wife and I have bought and sold about 12 homes personally, so we really love the real estate industry.
Q: What does it take to be a successful broker in this highly competitive market?
A: We have to put people first. We need to be constantly looking for the best opportunities for our buyers and to be proactively looking for buyers for our sellers. This means setting up demographic and geographic profiles of the buyers most likely to be interested in our sellers’ properties. We also specialize in keeping drama and stress out of the transaction as much as humanly possible. We have a motto here at The Tye Group: “More Joy, Less Drama.”
Q: Describe your most challenging project so far. How did you deal with it?
A: We recently had a commercial property located in the Loveland area that took three years to sell. It was in a floodplain, but on a very busy corridor. After working through the logistics of moving dirt, working with the county planners, the engineers’ office, and other municipalities, we finally found a developer that would purchase the property and develop it properly for a new business use. We are excited to see this property go from a vacant corner to a new business here this year.
Q: Are there any investment/development clusters/submarkets in Cincinnati right now? Where is development focused and why?
A: We are bullish on Loveland, Ohio, an eastern suburb of Cincinnati, due to the national scenic river and the paved state-long bike trail that runs through the town. It is a historic city that had a passenger train line running through for many years. The old town and the new development are mixed there, and the area has bars, restaurants, a bike shop, a running store, retail spaces, apartments, homes, condos, and farms nearby. It has a really neat small-town feel. You can dine street-side or trail-side and people-watch from morning till evening.
There have been a few multi-million-dollar developments recently completed, along with plans for several new upscale retail and condo properties. The school district is rated excellent, and it is close to highways and jobs. My wife and I have our own real estate investment company and have made a couple of investments there ourselves in the past year, with plans on more in the future.
Q: In your opinion, what are some of the strengths of the Cincinnati real estate market, and what are the challenges? How do you deal with them?
A: Cincinnati has a very diverse population of about two million people and nine Fortune 500 company headquarters here, sprinkled all over the region. We have a “tri-state” area with Northern Kentucky, South-Eastern Indiana, and South-Western Ohio, all coming together. We have a healthy small- and medium-sized business climate and our startup scene is very strong. We work with a lot of companies relocating employees here. Those employees find our house prices reasonable and the homes to be generous in size and amenities.
In the Cincinnati home market, right now we are at a ten-year low in inventory, so we have to get creative finding housing for these executives. Sometimes this involves door-knocking in target neighborhoods, calling homeowners, using Nextdoor, networking with other agents, etc. Ultimately, we find our clients’ dream home and help them with concierge services, to ensure a smooth transition to Cincinnati.
If you want to see how the real estate scene of some other U.S. states looks like, you can read our Q&A interviews covering the Tallahassee, Pittsburgh, Honolulu, and Tempe markets.
Whenever a big corporation lands in a city, many sectors of the economy get a powerful boost. In real estate, the influx of newly created jobs attracts a vast pool of talented professionals looking for a place to stay, which in turn leads to a spike in home renting and buying demand. Universities can have a similar effect on the real estate market, by constantly drawing in new students in need of a home to rent—or even buy, if they can afford it.
In our Expert Insight series, we devoted ourselves to unmasking the intricacies of the U.S. real estate scene by conducting a series of Q&A interviews with a selection of real estate professionals. One state at a time, we are trying to discover which factors influence the dynamics of each market.
Tempe, Ariz., Students Choose Homebuying Instead of Renting
Katie Walsh, The Walsh Team
The home of the first and largest campus of Arizona State University (ASU), Tempe, Ariz., is a college-driven economy. Benefiting from a healthy flow of students, the city’s real estate market enjoys an ascending path. However, not everything is perfect, as the market is land-locked. Our guest for today’s Expert Insight episode is Katie Walsh of The Walsh Team, who is going to tell us more on this subject.
A seasoned real estate agent working alongside her father on Tempe’s residential real estate market, Walsh has years of expertise in this field. She was active on the San Franciscan luxury homes market for a while, after which she worked for Tishman Speyer before deciding to return to her home city. Now, Walsh is going to share with us a few details regarding this market where students seem to prefer buying homes instead of renting them.
Q: How did you end up working in this field and what drew you to it?
A: After college, I ended up in media sales. After a while, I decided I wanted a bigger challenge, which meant that I needed to move on to sell airplanes, boats or houses. I opted for houses. My dad is also in the residential real estate business (since 2003), so it seemed like a good fit.
Q: What does it take to be a successful broker in this highly competitive market?
A: It’s got to be a real, full-time profession for a broker. To be successful, you have to stay on top of the inventory each and every day; you have to nurture good relationships with other agents, you have to be tenacious and creative. When you’re helping someone find a home to buy, you need to pay attention to all the small details regarding what they’re looking for and what they like.
Q: Describe your most challenging project so far. How did you deal with it?
A: Two years ago, I was the selling agent for a large home that was under-appraised by over $100,000 because there was a lack of recent sales for the appraiser to use. We were able to sell through that by showing the buyer the value of the home. Ultimately, the buyer came up with the difference in order to close the deal and get into that home. The other, daily challenges, are having hard conversations with clients about prepping their home for sale and dealing with varied clients in varied ways.
Q: Are there any investment/development clusters/submarkets in Tempe right now? Where is development focused and why?
A: Tempe is land-locked, so, short of some empty large lots, there aren’t a lot of new single-family residential real estate developments. Redevelopment is happening in many of the adjacent neighborhoods next to the Arizona State University and the Valley Metro light rail.
Q: In your opinion, what are some of the strengths of the Tempe real estate market, and what are the challenges? How do you deal with them?
A: The strength of the Tempe real estate market is a constant demand for housing. As students come to ASU, their parents purchase housing for them as an investment, opposed to renting off-campus housing. These students then graduate, and, if they wish to stay, they want to find a place in the area to upgrade to.
That leads to the challenge: there is never enough inventory between the student housing mentioned above and the families that move to Tempe for the good schools in the area. Even after their kids graduate, these families tend not to leave their established neighborhoods. Our older housing stock is now in need of renovation and updating, and the city of Tempe is a vibrant place to be, so we’re very popular. Adding to that the fact that we are land-locked, there are definitely challenges, but not insurmountable ones.
Q: How do you think the Tempe residential real estate market is faring compared to other bigger/more established markets?
A: Tempe is a very established market and we seem to be one of the hottest ones in the Valley.
Q: How is commercial real estate changing residential housing in Tempe?
A: Commercial real estate growth is helping us. Near ASU the rental units are so expensive that parents are buying homes for the students to use while they attend the university. In addition, the influx of new businesses (such as State Farm or ADP) also increases the demand for housing.
Q: Where do you think the Tempe real estate market is heading in 2018? Are there any major/exciting developments scheduled for delivery this year?
A: Tempe’s market will continue to be strong in 2018 and it’s going to get even more competitive – all the more reason to have solid relationships with other agents and a strong reputation in the industry, so that you can know about houses going on the market before they do.
Q: Is there a certain project or initiative in the works that you think will have a big impact on residential development in Tempe?
A: Once again, we are land-locked, so there isn’t much development going on in single-family real estate. However, some Boomers and Gen Y-ers are starting to downsize and want to move closer to where things are happening. They are moving to the neighborhoods near ASU and are fixing up an older home, they’re moving to luxury apartments downtown or they’re buying townhomes near downtown. They’re even investigating new options, such as the ASU’s Mirabella retirement community that’s being built near campus. It’s always exciting selling real estate scene in Tempe!
If you want to discover more about the real estate scene of some other U.S. states, you can read our Q&A interviews covering the Tallahassee, Pittsburgh, and Honolulu, markets.
Executive Summary
Q1 Office Overview
Q1 Industrial Overview
The Chicago commercial real estate market seems to be experiencing a growth spur, at least as far as the office and industrial sectors are concerned. While the first half of 2017 signaled a significant slowdown for the Chicago office market, the final months of the year saw sales activity recover, and that trend continued in the first months of 2018, with both sales volume and average prices rising steadily. The industrial sector was just as busy in Q1, particularly in the suburban markets, and the development pipeline indicates that 2018 will be a fruitful year for industrial development in the Windy City. Both sectors are fueled by high investor appetite and strong leasing activity, and the industrial scene in particular continues to show a lot of promise. Read on to see how Chicago’s office and industrial sectors fared during the first quarter of 2018, and what the market holds in store for the following months.
Q1 Office Overview
Office Sales Volume Rises 41% Y-o-Y, Closing Q1 at $1.3B
Following a disappointing first half of 2017, which saw office sales volume drop to the lowest level in five years, sales activity in Chicago started picking up the pace in the second half of the year, and this upward trend continued through Q1 2018. Office sales volume rose 41% year-over-year, ending Q1 with 14 deals closed for a total of $1.3 billion–the second-best Q1 performance in five years. While the numbers are nowhere near the high point recorded in Q1 2015, our data suggests this is not due to investor interest waning, as the market is prone to such fluctuations. Intense leasing activity brought office rents up to $29 per square foot in Q1, while office vacancy dipped 50 basis points to $16.9%, according to NKF research. Industrial-to-office conversions and continued development in buzzing tech submarkets such as Fulton Market will fuel interest in Chicago office space in the coming months.
Average Prices Reach Plateau at $218 per Square Foot
The average price for office assets trading in Chicago slid 14% year-over-year, resting at $218 per square foot at the close of the year’s first quarter. Even though average prices only recorded a modest 2.2% rise compared to the previous quarter, the past three months marked the second-best Q1 in the past five years, surpassed only by Q1 2017, when the average price per square foot was $255.
Sterling Bay Expands River North Presence With $510M Buy of 600 W Chicago
600 W. Chicago Ave. (Yardi Matrix)
The Windy City office market concluded the first quarter of the year with 14 transactions closed and $1.3 billion in sales volume. The quarterly highlight was the $510 million sale of Groupon’s headquarters at 600 W. Chicago Ave. to Sterling Bay in February. The developer of Fulton West purchased the 1.4 million-square-foot property from Equity Commonwealth, along with the residential properties at 900 N. Kingsbury St. and 758 N. Larrabee St. According to Yardi Matrix data, the sale was funded by a $374 million loan provided by Morgan Stanley.
The former Montgomery Ward warehouse was converted to office space in 2001 following an adaptive reuse effort, and is now fully leased to tenants including Groupon, Freeman, Dyson and Mars. Sterling Bay plans to upgrade the building to meet modern standards, by adding more retail space and revamping the tenant amenities. The sale of the massive Groupon headquarters leaves Sam Zell’s Equity Commonwealth with just one property in Chicago (the Triangle plaza near O’Hare International Airport), and expands Sterling Bay’s footprint in the River North submarket.
151 N Franklin, McDonald’s Corporate HQ Set to Come Online in Q2
When it comes to new office deliveries, the first quarter of 2018 was a slow one. There was only one new office development exceeding 50,000 square feet to come online in Q1–the 202,000-square-foot building at 165 North Aberdeen. Spearheaded by MCZ Development, the 11-story Class A project is part of the bustling West Side Chicago office market, and includes 15,000 square feet of retail and 147,000 square feet of residential space. The building also aims to achieve LEED Silver certification from the USGBC.
The Q2 pipeline promises to be thicker, as 8 projects totaling 2.4 million square feet of office space are scheduled to be delivered to the Chicago market. The largest delivery of the quarter will be the 807,355-square-foot tower at 151 N. Franklin in the city’s central business district. Developed by The John Buck Co., the 35-story high-rise is a spec building that will incorporate office and retail space, and will aim for LEED Gold certification. CNA has already signed up for office space in the building.
Another highlight of Q2 2018 will be the completion of McDonald’s Corporate Headquarters at 110 N. Carpenter St. Featuring 596,000 square feet of space, the West Loop office building is being developed by Sterling Bay at the site of Oprah Winfrey’s former Harpo Studios. Once the project is completed, McDonald’s will move its corporate base from its current headquarters in Oak Brook, Ill., to its new home in downtown Chicago.
Q1 Industrial Overview
The office market in Chicago fared well during the year’s first quarter; however, the busiest sector for the city continues to be the industrial one. Investor appetite is strong and demand for quality industrial assets is high, fueled by the continuous growth of the online retail industry and the growing need for warehouse space to house distribution centers.
The industry is currently undergoing a shift, as the traditional retail mall becomes obsolete and e-commerce continues to rise. Retail giants such as Macy’s, Toys R Us, RadioShack and BCBG have filed for bankruptcy, while online retail juggernauts like Amazon continue to grow in popularity and expand their footprint across the country. In an effort to keep up with demand, fulfillment centers are popping up everywhere, and cities race to host Amazon’s second headquarters–including Chicago. The industrial sector is picking up the pace, trying to keep up with the surging demand, but appetite is high for new space that meets today’s requirements. According to a recent CBRE survey, the average age of a U.S. warehouse is 34 years, and it is unfit to meet today’s standards. Consequently, activity in the industrial sector is surging, especially in the Chicago area, which benefits from a strategic location in the heart of the Midwest.
Industrial Sales Total $475M in Q1
After reaching a peak in terms of sales activity in Q3 2017, when 21 deals closed for $751 million, the Chicago industrial market started gradually slowing down from quarter to quarter, ending Q1 2018 with 16 deals closed and $475 million in sales volume. The total dollar volume dropped 28% compared to the final quarter of 2017, and was roughly on par with Q1 2017, rising only 2% year-over-year. Historically, industrial sales are slower at the start of the year and tend to accelerate in Q4, as the chart below shows. Consequently, even though the past two quarters marked decreases in sales volume, it’s nothing unusual for the market, and activity is likely to pick up steam in the second half of the year.
Average Prices Conclude Best Q1 in 5 Years, at $65 per Square Foot
In terms of the average price per square foot, Chicago concluded its best first quarter in five years. Q1 2018 ended with industrial buildings trading on the market at an average price of $65 per square foot, marking an 11% rise year-over-year. The market reached its peak in terms of average prices in Q3 2017, when assets changed hands at $94 per square foot, then it slowed down in Q4, when prices went back to the numbers recorded at the start of the year ($58 per square foot). Chicago’s industrial sales market is just as prone to fluctuations as the office market, depending on the demand-supply balance; when supply fails to keep up with the demand, prices go up as investors compete for quality new industrial space. NKF predicts that industrial vacancy in Chicago will go up over the next months as the market gets new supply; however, the industrial sector will remain the market’s best-performing asset class throughout 2018, so prices are likely to continue rising.
Equity Office Seals Largest Industrial Deal of Q1 for $150M
There were 16 major industrial deals to close in Chicago during Q1, amassing $475 million in sales volume and 6.9 million square feet traded. The largest transaction of the quarter was a portfolio deal consisting of three industrial buildings located in Aurora, Ill. Equity Office Properties Trust paid JP Morgan Asset Management close to $150 million to buy the 860,248-square-foot asset at 1700 North Edgelawn Drive, the 530,937-square-foot building at 2380 Sullivan Road, and the 301,468-square-foot property at 2303 West Indian Trail.
The Aurora deal comes on the heels of a massive, $1.8 billion industrial transaction closed by Blackstone at the start of the year. The company purchased a 22 million-square-foot portfolio from Cabot Properties, which includes 146 industrial assets located in Chicago, Dallas, Baltimore, Washington, D.C., Los Angeles, South Florida and New Jersey. We excluded this portfolio deal from our analysis, since no individual or market-focused sale prices have been disclosed, so there is no way of knowing the exact price Blackstone paid for the Chicago assets in the portfolio.
IKEA to Debut 2.3 MSF Joliet Distribution Center in Q2
The first quarter of the year was much busier on the industrial side than on the office one for the Chicago market. Twelve new industrial projects totaling 3 million square feet were completed during Q1, all of them located in the suburbs. The largest delivery of the quarter was the 676,026-square-foot distribution facility at 175 Southcreek Parkway in Romeoville, Ill., a spec project spearheaded by California-based Panattoni Development. The company first announced its intentions to invest in Chicago’s strong industrial market back in 2015, revealing plans to build more than 2.3 million square feet of warehouse space, without signing any tenants beforehand. The fact that developers are willing to make that bet is a clear sign that the market is thriving and quality industrial space coming on the market will find tenants in no time.
The pipeline for Q2 2018 looks even more promising, as 18 new projects are scheduled for delivery, totaling 5.8 million square feet of industrial space. Seventeen of these projects are located in suburban Chicago, with one exception: the property at 13535 South Torrence Ave., featuring 380,994 square feet of Far Southeast Side Chicago industrial space.
The largest delivery of Q2 is set to be the 1.3 million-square-foot Laraway Crossing Business Park – IKEA Distribution Center. Located at 650 Emerald Drive in Joliet, Ill., the new distribution facility will serve at least 10 stores in the Midwest, including IKEA’s stores in Cincinnati and Columbus, according to Columbus Business First. The Swedish retailer has equipped its new facility with the largest solar roof in the state, and now boasts three of the largest solar rooftop installations in Illinois.
Methodology
We used detailed Yardi Matrix data to analyze all office and industrial transactions with price tags equal to or exceeding $5 million to close in Chicago during the first quarter of 2018 (January through March). Our analysis, based on data recorded up until April 12th, 2018, includes completed office and industrial buildings equal to or larger than 50,000 square feet that changed owners during the quarter. In the case of mixed-use assets, only properties featuring over 50% office space were taken into account. We counted portfolio deals as single transactions and excluded distressed sales altogether. Some sale prices were calculated based on a tax-transfer formula.
To make sure the trends and comparisons presented in our analysis are valid, we excluded portfolio, partial interest and ground lease deals from our calculation of the average price per square foot.
While every effort was made to ensure the timeliness and accuracy of the information presented in this report, the information is provided “as is” and neither CommercialCafe nor Yardi Matrix can guarantee that the information provided is complete.
Property images courtesy of Yardi Matrix.
Media iQ Digital, a global analytics and technology company, is tripling its office footprint in Manhattan. The independently funded organization has decided to leave its headquarters in Greenwich Village and move to a bigger space in the city’s NoMad submarket.
261 5Th Avenue, New York (Yardi Matrix)
The company has recently entered a 10-year, 23,396-square-foot lease at 261 5th Ave., where it will occupy the entire 25th and 26th floors. Its new offices benefit from exclusive access to a portion of a private rooftop terrace, accessible through a passenger elevator. According to an official release, the asking rent price was $85 per square foot.
“We’re very excited for our new office space and its convenient location. The move comes as a result of Media iQ’s consistent growth in North America over the past several years,” Rebecca Mahony, the company’s chief marketing officer, said in a statement.
The analytics services provider founded in 2010 is moving to the 1928-built tower from its current 8,013-square-foot space at 853 Broadway, another historic New York City office building. This move marks the company’s third expansion; Media iQ Digital initially occupied a 2,200-square-foot space at 853 Broadway.
Media iQ’s new home, the 26-story high-rise at 261 5th Ave., has a diverse tenant roster comprising a combination of general office users and retailers. The building is home to public relations firm DKC, e-commerce platform Next Jump, The Brandman Agency, and a variety of companies active in the home goods industry—per Yardi Matrix data. This lease brings the tower’s occupancy to 87%.
The 441,922-square-foot office asset features 18,108 square feet of retail space and a 57,305-square-foot showroom. Originally completed in 1928, the Art Deco building was cosmetically renovated in 2000. The revamping efforts included lobby, façade, and common corridor upgrades, as well as the installation of a high-speed elevator dispatch system. Located between the Flatiron and the Garment districts, the property is close to Madison Square Park.
Last modified: April 23, 2018
