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How Commercial Real Estate Professionals Add Value To The Property Search Process

30 Apr

Professional commercial real estate brokers add value to the process of finding solutions to solve commercial real estate requirements. While some consumers believe they can effectively direct their own search due to the rise of online databases such as Loopnet, Reis and Truss, these consumer-facing databases don’t always provide current and comprehensive market data. These online services also cannot provide other significant, personal, and specific services that a real estate professional can provide. A professional commercial real estate broker has access to current market as well as to any off-market availabilities, which is especially crucial in a very tight real estate market such as we are currently experiencing. No online database can fully replicate or replace the market knowledge and experience of a professional broker.

Aside from having access to current available properties, a broker has first hand knowledge of current industry trends, fair market pricing, leasing concessions and other valuable market information which can enable the consumer to obtain the most favorable financial terms. Since professional brokers are involved in the market day to day, they will have a better overall understanding of current market conditions. The commercial broker also can leverage their relationships with other commercial brokers and landlords to achieve the most favorable bargain on behalf of the client. Further, a professional broker understands the complexities and nuances involved in a commercial real estate transaction and that experience is extremely valuable. In addition, brokers work with the client’s attorney in an effort to avoid potential pitfalls in a commercial lease.

It is customary that the brokerage commission is paid by the landlord in the commercial real estate industry.  Landlords include this cost as a line item when they proforma a real estate project, and is a relatively insignificant cost in relation to the overall project. Landlords highly value commercial real estate brokers as they make introductions to prospective tenants which are the linchpin for the success of their investment. So Landlords gladly compensate brokers because of the value they bring to the table, even though Landlords understand that the tenant or buyer broker must advocate on behalf of their client’s best interests.

Finally, a professional full service broker can also provide assistance with other aspects involved with leasing or purchasing commercial property such as referring general contractors or providing guidance pricing on build out costs, relocation coordination and obtaining vendors to help with furniture, fixture and equipment installation, etc. Commercial real estate professionals provide a valuable service to the consumer and should be an integral part of the process when searching for property.

Please contact me to review your specific space requirements and help with finding the best solution to your specific commercial real estate requirements.

Warren Brown, President, Boston Commercial Properties, Inc.

The Shrinking Greater Boston Industrial Base

29 Jan
The Greater Boston market for industrial space is super tight. Overall vacancy rate is just 7.6% at end of the 4th quarter (Source: CoStar Group). I don’t see this changing very much even with an economic downturn. Sure, in such weakened economic environments demand falls off, but I do not foresee an appreciable increase on the supply side in such circumstance.

The main reason is that land in Greater Boston is just too expensive to support industrial uses. Industrial properties have been re-purposed for other higher and better uses such as multi-family, office, retail or bio-tech lab space development.  Since 2013 Suffolk County, essentially Boston, shed 1 million square feet of industrial space (Source: CoStar) or 5% of the total industrial base (Source: Boston Globe, John Chesto 10/15/18 article).

Two examples of this are (aka “The Linx”) and the former Boston Globe printing facility at 135 William T. Morrissey Blvd in Dorchester. In the case of the Linx, this former Verizon garage building was converted into a multi-tenant bio-tech lab building by Boylston Properties. After a very successful and rapid lease-up campaign, this 185,000 sf property was subsequently sold for $154m last year, sending shock waves through the commercial real estate industry. The Boston Globe property has been master planned for a makeover into commercial, lab, and office space by the Nordblom Company.

Another cause for tightening supply of industrial space is the paradigm shift of the retail industry to e-commerce vs. bricks and mortar stores. E-commerce companies increasingly require distribution facilities in very close proximity to heavily populated metro areas to facilitate instant delivery of products to the consumer, and they are willing to pay higher prices for it.

As e-commerce is still in its early stages, demand from this sector for so-called last mile warehouses will not fall off. We are even witnessing a return to multi-story warehouses in highly populated cities to accommodate e-commerce and their need for quick turn from transaction to the consumer. For example, Bridge Development Partners and DH Property Holdings have joined forces to acquire an 18-acre site in Brooklyn, where they plan to a build a four-story, 1.3M SF distribution center, the largest multistory warehouse in the United States (Source 1/11/19 Bisnow). While this will be a state of the art distribution facility with 38 ft. and 28 ft. clearance and truck access to all 4 levels, multi-story warehouse space was unheard of until just recently. Expect this type of investment in existing multi-story warehouses to occur in Boston as well.

As a result of the surge in e-commerce demand and re-purposing of industrial properties, prices have skyrocketed for industrial space close to metro areas and this has spread to the Route 128 area as well. A 40,000 sf industrial building in Braintree is reportedly under agreement to be purchased for $120 psf. This type of pricing is approaching cost for new construction which has historically been the path of last resort for users of industrial space.

Traditional wholesalers and manufacturers that are located in inner city areas are being forced to relocate further away and beyond the Route 128 area to Route 495. Experienced developers such as the Campanelli Companies and National Development have been ahead of this trend and have been buying empty buildings and even building ground up on spec, i.e., without having tenants in hand. However, tenants with requirements for new space will benefit from the new construction as developers recognize the need for high clear heights, ESFR sprinkler systems, wide bay spacing, energy efficient LED lighting and large truck apron to accommodate automation and high tech material handling equipment that tenants require.

As a professional, full service commercial real estate firm, we specialize in industrial property leasing and sales. See our Transactions page to see some of the work we have done. Please contact me to review your specific real estate requirements and assist with navigating this complicated industrial property landscape to find the ideal solution in order for your business to succeed.

Warren Brown, Boston Commercial Properties, Inc.

2019 Forecast: Dark Clouds Forming

09 Jan

original photo by fiona graeme cook, boston commercial properties, dark clouds1/8/19

The risks to the downside for the commercial real estate market are currently outweighing the upside as negative indicators have increased. The first obvious concern is the return of high volatility with selling pressure in the equity markets. For 2018, the Dow was at -5.97%, S&P -6.24% and NASDAQ -4.38%. The S&P closed the year near bear market territory from recent highs. Now stock market sell offs are not necessarily an indicator of future economic slowdown, but the shock may lead to one in the near future as other economic factors mount. Current volatility may be similar to that of 2016, and we are just not used to the current roller coaster ride as the market in 2017 was so benign. We may be experiencing asset repricing as markets may have gotten ahead of accurate valuations. If assets do reprice to depressed levels, the impact on the psychology of investors will weigh on the overall economy.

Further, as Neil Irwin mentioned in his Boston Globe column on 12/25/18: “The sense of doom & gloom and pessimism has gotten ahead of the facts on the ground….[the economy may be] returning to old new normal of moderate economic growth that was completely normal from 2010 to 2017. ” However, there seems to be a “crisis in confidence.” On that latter note, there is a palpable sense of declining confidence in the political realm. Investment bank RBC Capital markets surveyed big investors in December about what kept them up at night,and Trump topped the list. Interest rates and trade war ranked second & third (Reference: 1/2/19 Boston Globe). Indeed, the irrational tweeting by the President along with misguided statements made by Treasury Secretary Mnuchin rocked equity markets at year end and left investors with a sense of a vacuum of leadership in the Executive branch which is not a good thing for financial markets. Equity markets do not like uncertainty and the uncertain political climate along with economic conditions will continue to weigh investors minds.

Other concerns include an inverted yield curve which has frequently in the past preceded recessions, future rate hikes by the Federal Reserve, Fed unwinding of its bond purchase program which tightens money supply, corporate earnings (e.g. Apple), slowing Chinese economy, trade war concerns, continuing U.S. government shutdown, weak ISM Manufacturing Index report, slowing service sector, unstable Brexit process, slowing European economies and record high corporate debt as companies feasted on historically low interest rates to finance expansion. Corporations may now look to correct their balance sheets, seek to trim expenses and cut back on hiring. On the trade war front, mark your calendar for March 1st which is the deadline for the U.S. and China to resolve trade differences.

In spite of concern of political leadership and the aforementioned indicators, other economic fundamentals appear to be very strong. Mainly employment is very a strong – a major factor of the economy. The December unemployment report indicated 312,000 jobs created which is a very strong number and far exceeded expectations but wages increased a strong 3.2%. While inflation is still under control, with rising wages, expect the Federal reserve to continue tightening short term interest rates which will have a negative effect on the mood on Wall Street and create a drag on the economy.

Let’s take a look at the current state of the residential market which is a main driver of the domestic economy. Locally, the Warren Group just reported pretty strong conditions. November showed both sale prices and sales volume at all time highs for the month of November. The median sale price for a single family home in Massachusetts is $385,000. But sale price increases are rising at a slower rate than earlier in 2018. With continued low levels of inventory, prices are reaching a point where many buyers cannot afford to buy. The condo market is experiencing increase in supply. In Boston, luxury home sales actually fell 4.7% in Q3 to an average of sale price of $3.6m (Source: The Warren Group). Anecdotally, my colleagues in the residential real estate industry report that homes are sitting on the market longer with fewer offers received.

In New York City, a correction has been underway for a while as in some cases, sellers have taken a haircut of 30%. The median price for a Manhattan apartment fell below $1m. This is the first time below this level since 2015 (Source: The Warren Group).

The residential market will likely begin to feel softer as more homes are put on the market. This will lessen the rise in sale prices and stabilize the market. The reality is the residential real estate market has been extremely tight for an extended period of time, is not sustainable and is cyclical. Expect supply to increase and softening in the residential real estate market with gradual decrease in median sale prices. As the residential market softens, expect the economy to slow given the huge impact the residential market has on the overall U.S. economy.

As with the economy and residential real estate market, the commercial real estate sector is cyclical, an eventual downturn is inevitable and expect commercial real estate to begin to soften this year. As interest rates rise, capitalization rates will rise thus lowering overall valuations. As companies seek to clean up their balance sheets, expect belt tightening, restraint on expansions and reduction of head counts. This will curtail demand for new space overall. Vacancy rates will begin to rise and the recent trend of lease rate increases will flatten out. The greater Boston economy has proven to be resilient with diverse industries including defense, biotech, enterprise, cyber security, fintech, education and healthcare. This resiliency will soften the blow of any downturn locally but weakening conditions will develop nevertheless.

Contact me to further discuss any questions and to review your specific space requirements to find the best solution to your needs and to provide a steady hand during turbulent times.

Warren Brown, President, Boston Commercial Properties, Inc.