Moody’s New Commercial Property Price Index

May 29th, 2012  ::  Posted by CRE Console

Moody’s recently conducted a conference call to summarize the changes to their Commercial Property Price Index (CPPI).

The major enhancements to the index include:

  • Two stage annual-to-monthly frequency conversion: more signal, less noise, no lag.
  • Segmentation of the six major “gateway” markets versus rest of US for each property type.
  • “Building block” indices equal-weighted while roll-up composite indices are value weighted.
  • CBD and suburban office sectors treated as effectively two different property types.
  • Prior sale threshold of $2.5 million is inflation adjusted to remove any bias.
  • Results not “frozen” and constantly revised based upon all available and most current data.
  • All indices monthly, faster reporting cycle.

Minor tweaks include:

  • Distressed sales to third parties included, foreclosures by lenders not valid
  • Pairing of non-sequential sales of same property allowed, provided all other filters are passed and no overlap with other pairings
  • Flip filter reduced to 12 months from 18 month holding period
  • Extreme returns filter is set to exclude any paired observation in which the annualized return exceeds +/- 50%

What will remain the same?

  • Real Capital Analytics continues to be source of data
  • Only valid, arms-length sales included
  • A series of filters are employed to ensure that the prior and current sales are comparable, do not represent a material change in use or size, each transaction is reflective of market pricing

So, what do these changes look like when compared to the prior index and its methodology?

They’ve also better formalized their Major Market Index, which was previously called the Six City Index.

All-in-all, fabulous improvements to a fabulous index.

[View the entire presentation]

Case Study: McEwen Office Building Sale

May 23rd, 2012  ::  Posted by CRE Console

KBS Realty Advisors recently announced its acquisition of the McEwen Office Building from Amstar last month.

KBS Real Estate Investment Trust III (KBS REIT III), a publicly registered, non-traded real estate investment trust based in Newport Beach, Calif., has purchased The McEwen Building, a 175,262-square-foot office building in Cool Springs, Franklin, Tenn., 15 miles south of downtown Nashville. Amstar, headquartered in Denver, was the seller. With the acquisition, KBS and affiliated companies own 726,446 square feet of space in the greater Nashville area.

The McEwen Building is a LEED-designed six-story office building with ground floor retail located in the desirable office, retail and residential submarket of Cool Springs in Williamson County, one of the nation’s most affluent counties. The Building sits within the 93-acre mixed-use McEwen project that offers 370 existing apartments and 45,000 square feet of retail space, including Whole Foods and BrickTops. An additional 40,000 square feet of retail is expected to open in the fall. Amstar was represented by Don Albright of Cushman & Wakefield/Cornerstone in Nashville, while KBS represented itself in the transaction. The deal was KBS REIT III’s fourth acquisition.

“From an asset perspective, The McEwen Building ‘out-leased’ several competitor buildings due to its quality, superior amenities and proximity to Interstate 65,” said Stephen Evans, KBS Mid-Atlantic Region senior vice president and director of acquisitions and dispositions. “From a location perspective, the area has had positive net absorption for the past 10 years, and office vacancy stands at six percent and unemployment is low at seven percent. The building and the market have all the characteristics we are seeking.”

Amstar, in partnership with Southern Land Company, developed the property starting in 2008 on a 10.7-acre site at the intersection of West McEwen Drive and Mallory Lane. Through an aggressive marketing and leasing plan, Amstar and Southern Land Company stabilized the property within two years of delivery. The property is currently 97-percent leased to credit tenants, including Renal Advantage, Mars Petcare, Raymond James, Carlisle Companies, Inc. and Cisco Systems, Inc.

“Amstar is excited to sell the property to such a capable buyer and landlord as KBS,” remarked Amstar Senior Vice President Della Wegman. “While we remain excited about the remaining opportunities at McEwen, we are very pleased to welcome KBS as a neighbor.”

[KBS Press Release]

The $40 million transaction is one of the most recent examples of the power of CRE Console’s marketing platform.

On behalf of Amstar’s exclusive representative, Nashville’s Cushman & Wakefield Alliance office, CRE Console created the property’s website which hosted over 325MB of marketing and diligence information.

CRE Console also identified several thousand qualified principal investors to which to market the property. This extensive list of principal investors generated in excess of 100 signed CAs and an undisclosed number of offers, culminating with the sale to KBS Real Estate Investment Trust III.

To view other listings the entire C&W Alliance has on CRE Console, please visit

To list a property on CRE Console, please contact us to receive a quote.

Seattle’s PacMed Tower note to be sold

April 4th, 2012  ::  Posted by CRE Console

A $20.5 million note secured by a leasehold interest of the PacMed building; the former headquarters for, sits atop Beacon Hill. The current mortgagee, Seattle-based developer Wright Runstad, defaulted on the loan last summer.

In 1998, Wright Runstad & Company signed a 99-year agreement with PacMed Clinics to lease most of the historic building, which was then redeveloped for Amazon subleased approximately 189,700 square feet of the tower for its headquarters from May 1999 through May 2011.


According to an article in the Seattle Times:

Wright Runstad leased most of the building from the authority in 1998 for 99 years, then converted it into office space and subleased it to Amazon.

For financing, the developer borrowed $23 million in 2000 from Credit Suisse First Boston, which then packaged the loan with others into commercial mortgage-backed securities.

Wright Runstad still owes $20.5 million on the 30-year loan, according to servicer reports.

But fast-growing Amazon moved out when its lease expired last spring, and Wright Runstad hasn’t found a new tenant.

A proposal to relocate King County’s juvenile court and jail there fell through last year. City University of Seattle considered moving into the building, but relocated to Belltown instead.

An appraiser valued the PacMed Building last summer at $6.25 million, down more than 80 percent from its 2000 value.

Wright Runstad stopped making loan payments last August. LNR said in a September note to investors that it was “proceeding with foreclosure at this time.”

But there’s no indication foreclosure proceedings have begun.

Several Seattle-area real-estate analysts expressed doubts last fall that LNR really wanted to repossess the empty building and assume responsibility for filling it and making lease payments to the landlord, the Preservation & Development Authority.

For those who are interested, you may view this listing on CRE Console, prior to the note auction on which is scheduled to begin at 10am on April 16th. The beginning bid is set at $2 million.

[Seattle Times]

PwC Real Estate Investor Survey Q1 2012

March 27th, 2012  ::  Posted by CRE Console

PricewaterhouseCoopers has released the results of their  Q1 2012 Real Estate Investor Survey.

Titled Encouraging Trends Revive Investor Interest in Industrial Assets, it notes a recent shift in market sentiment:

While many investors remain focused on how to capitalize on the burgeoning apartment sector, a growing number of buyers are revisiting the rebounding industrial sector as it continues to demonstrate positive signs of recovery. “Warehouse demand is rapidly picking up, especially in coastal markets with international port access,” notes a participant. “Absorption levels have been impressive even though U.S. economic growth has been weak,” remarks another.[...]

While the desire to acquire warehouse assets at this point in the cycle is not unusual for many investors, the current investing environment is far from “normal.” So, while investors are intently monitoring an array of factors, including the U.S. economy and its impact on this sector’s fundamentals, they are also closely watching developers. Even though additions to supply have been constrained, a shortage of quality bulk warehouse space is spurring speculative construction and build-to-suit activity in various markets.

As it relates to specific asset classes:

Compared to last quarter’s analysis, the anticipated pace of recovery for the office sector has been reduced for 2012 due to a slowdown in the U.S. economy’s expected growth for the year. On a positive note for the office sector, job gains continue to occur, which should eventually lead to more demand for office space. [T]he percentage of the office sector in expansion jumps by year-end 2013 and continues to grow through 2015.

The retail sector remains challenged by a lack of consumer spending and a large amount of empty space to fill at a time when few retailers are expanding. [T]he bulk of the U.S. retail sector sits in recession through year-end 2013. Even though the amount of U.S. retail stock in recovery will surge by year-end 2014, roughly a third of it will remain in recession at that time. More – over, the portion of retail stock in expansion fails to rise above 25.0% over the next four years.

The expected recovery for the industrial sector has decelerated somewhat compared to last quarter as the European recession has reduced exports and U.S. economic growth slows. As a result, a larger portion of this sector is projected to stay in recession in 2012 before recovery dominates by year-end 2014. By year-end 2015, our barometer shows that more than half of this sector’s stock will be in expansion while the remainder will be in recovery.

Underlying fundamentals remain extremely positive for the U.S. multifamily sector through 2015. Although some ”red” and “yellow” appears on the horizon by year-end 2014 and 2015, the expansion and recovery phases of the cycle will dominate this sector for the next four years.

This report also included coverage on secondary office market conditions, which was a nice addition.

CBRE Cap Rate Survey February 2012

March 19th, 2012  ::  Posted by CRE Console

CBRE, Inc conducts one of the CRE industry’s most thorough cap rate surveys. Below is an excerpt from their most recent:

Investor demand for US commercial real estate assets expanded in 2011. A steady recovery in the leasing market conditions that drive income combined with both low rates of return and excessive volatility in other asset classes has persuaded many investors to reconsider commercial real estate investments. Figures from Real Capital Analytics (RCA) show that transaction volume grew over 50% from 2010 with yearend property sales totaling $211.2 billion. To put this figure into context, in 2005, the first year for which consistent figures are available, the US market saw $339.4 billion in commercial property transactions.

The retail and hotel sectors saw the largest growth rates in investment activity in 2011, with volume up 89.1% and 96.8% respectively. Part of these high rates of growth is from the turnaround of expectations on the capacity of the US consumer. Surveys of investor intentions consistently showed retail as the least favored sector early into the downturn given the consumer related economic shocks.

Another factor driving the high rates of growth is the investor preference for safety and security. The RCA figures show that for the retail sector, investment sale activity within the strip center component was up 108% from a year earlier. This category is the component capturing grocery anchored retail which came to be particularly favored by investors for with the focus on the sale of the daily necessities; these shopping centers were not as impacted by the decline in discretionary spending seen during the economic downturn. Beyond this segment of retail however, other asset types associated with core assets and core markets did well.

Investment in the office sector was up 31.9% year over year, lower than overall transaction volume, but the CBD office component was up 56.3% year over year. The perception that these assets have more durable exit pricing, and exit liquidity, have made investors particularly hungry for these assets though the large lot sizes also makes CBD office assets an efficient way to deploy large amounts of capital quickly.

CBRE Cap Rate Survey February 2012

New Feature: Stand Alone eCAs

March 12th, 2012  ::  Posted by CRE Console

Many of our users don’t need a full blown property website and document center for every single one of their listings. But they’d still like to be be able to use electronic confidentiality agreements to automate the investor registration process.

For this reason, we’ve build a stand alone investor registration module which allows our users (and anyone else) to do just that.

How does our Electronic Confidentiality Agreement service automate the investor registration process?

  1. Upload your standard PDF confidentiality agreement into our form.
  2. Enter the lead broker’s contact information.
  3. Copy and paste our unique URL where ever you need it.

What happens next?

  1. Investors can sign your CA form electronically directly in their browser. No printers, pens or fax machines required.
  2. After signing the the eCA, the investor will be redirected to where ever you chose, like your website, the property’s website, or even the property’s flyer or OM.
  3. Every time a new CA is signed, we’ll email you their contact information, digital signature and IP address.
  4. We’ll also send the investor an email with the information they submitted, along with the lead broker’s contact information, in case they have any questions.

What else does this feature allow me to do?

  • Access your account anywhere, anytime; the system is 100% cloud-based.
  • Export a list of every investor who has signed the CA with their full contact information into Excel.
  • Create an unlimited number of electronic agreements.

How much is this service? How about FREE? Yep, free.

Still have questions? Take one for a test drive: see a live example.

Ready to give it a go? Create your free account now.

Commercial Property Prices in… 2017?

February 13th, 2012  ::  Posted by CRE Console

In Moody’s last CPPI report, they presented a forecast of commercial property prices that examined how much of the 2007 peak values may be retraced prior to the major CMBS refinance years of 2016 and 2017.

[The chart below] shows the Six-City value series on the left as represented by the solid line. Our forecast is on the right and is represented by the dashed line, with a one standard deviation margin of error represented by the orange cone.

The Six-City Index is based on repeat-sales in six of the largest U.S. markets, in which the prior sale exceeded $10 million and with distressed transactions excluded. While this “From the Lab” index is somewhat “noisier” than CPPI due to its more limited data set, it is illustrative of broad value trends for the type of properties held by institutions. It indicates that values have recovered about half of the peak-to-trough decline but have stalled as of late.

The forecast shown was produced with Moody’s Commercial Mortgage Metrics (CMM) and was created by running a model pool of properties that have equivalent characteristics of the RCA repeat-sales database used to create the CPPI and Six-City Index, with August 2011 as a reference date.

By August 2016, property prices should be just shy (by 2.1%) of where they were in August 2006. However, values in August 2016 are expected to be 8.3% higher than those of August 2011 and 43.4% above the 2009 trough.

Get the full report here.

Delhaize Store Closing Map

January 26th, 2012  ::  Posted by CRE Console

On the heals of Sears Holdings announcing their 79 store closing list, Delhaize (dba Food Lion, Bloom and Bottom Dollar) has released a list of 126 stores which they intend to close.

View Delhaize Store Closing Map in a full screen map

On average these stores aren’t as well located as many of the Sears and Kmart locations, but many still represent great opportunities (see where Boyle Investments recently announced they were back filling a Food Lion box in Donelson Tennessee).

Here again, these store closures do represent another great buying opportunity in 2012.

General Growth to spin off 30 non-core malls

January 6th, 2012  ::  Posted by CRE Console

In Wednesday’s Wall Street Journal, there was an article on GGP’s plan to spin off 30 of its weaker malls and create a new publicly traded company, Rouse Properties Inc.

General Growth executives tout the separation as a means for General Growth to focus its resources on its remaining 137 best-performing malls. The spinoff, to be called Rouse Properties Inc., then can concentrate on buying and rehabilitating so-called B malls, which mostly are lower-productivity malls in secondary and tertiary markets.[...]

“Rouse is being created to be a B-mall consolidator,” Mr. Mathrani said in a December interview at General Growth’s Chicago headquarters. “They can actually be a viable, strong B-mall company. We’re putting assets into this business that are good assets.”

GGP did something similar with much of their non-mall portfolio in 2010, creating Howard Hughes Corporation. The HHC IPO debuted at $30.00 per share and currently trades at $46.21 a gain of 20%+. GGP on their other hand, is only up 5% since HCC’s IPO.

But how will Rouse perform? According to PwC’s most recent Real Estate Investor Survey, Class B+ Malls are trading at cap rates of 7.75% or about 175 bps above their Class A+ counterparts. That’s more than a 20% discount.

The question yet to be answered is, Is GGP trading at a discount because these assets are currently in their portfolio?

Will this discount be passed along to Rouse, causing GGP’s stock to pop, but not Rouse’s? Or will something similar to what happened for the HHC IPO and Rouse will be the one to pop?

PwC Real Estate Investor Survey Q4 2011

January 3rd, 2012  ::  Posted by CRE Console

PricewaterhouseCoopers has released the results of their 4th Quarter 2011 Real Estate Investor Survey.

One of the most popular features of this report is the cap rate trend section. This issue reported the largest decline in Net Lease cap rates (recording a drop of 54 basis points). Larger declines were also seen in Regional Mall (down 27 bps) and Apartment (down 18 bps) cap rates.

Titled, Buying Beyond Core Remains Tricky, the report notes that “buying opportunities beyond the core markets remain tricky due to a protracted recovery outlook for both the U.S. and many secondary markets.

It goes on to say:

Surveyed investors cite that commercial real estate continues to offer attractive yields compared to alternative investment vehicles. In the office sector, investors are bullish regarding their prospects for tenant retention and expect office rent growth in many markets in the coming year.

“Despite a sluggish U.S. economic outlook, the majority of surveyed investors view commercial real estate as favorably priced and a good play,” said Mitch Roschelle, partner, U.S. real estate advisory practice leader, PwC. “The bullishness on the part of investors in the office sector comes as more office tenants are staying put and prospects for rent growth are improving. Looking ahead to 2012, our report suggests that investing in U.S. commercial real estate is an attractive play and will gain increasing global attention due to its hard asset nature and current income-producing characteristic, along with its total return potential.”

Highlights from the survey include:

Investors continue to search for buying opportunities involving commercial real estate despite a slowdown in the pace of the industry’s recovery and a sluggish outlook for the U.S. economy.

Commercial real estate continues to offer attractive yields compared to alternative investment vehicles.

The majority of investors view commercial real estate as “favorably priced and a good play.”

While most investment strategies are focused on core markets, a growing number of investors are searching for tactical acquisitions in secondary markets.

The average overall cap rate decreased in 22 Survey markets this quarter.

This quarter, the national net lease market reported the largest decline in its average overall cap rate.

The Pacific region apartment market reported another strong quarterly decline.

As the industry’s recovery gains momentum, the need to provide additional inducements to tenants typically subsides.

The ability for owners to retain tenants has improved over the past year.

Many tenants are content to remain in existing spaces upon lease expiration due to the costs associated with relocating.

As it relates to specific asset classes and locations:

Individual mall performances are highly bifurcated.

Many dominant malls with luxury department stores and upper-tier tenants are doing well.

Many big-box merchants continue to look for ways to improve profits.

Some big-box retailers are reducing brick-and-mortar footprints and competing more aggressively on-line.

The West and Southeast regions of the country are top location picks for shopping center investments.

Some investors like “fortress” locations where development is limited.

Investor sentiment has waned somewhat over the past several months.

A growing number of investors are looking at secondary office markets for higher-than-core yields.

Cash flow assumptions this quarter reflect a wait-and-see investment attitude.

Some investors are avoiding this property type right now.

Sales activity decelerated a bit in the third quarter of 2011.

The average overall cap rate appears to have stabilized.

The U.S. industrial vacancy rate is receding at a slow rate.

Many investors believe that market conditions do not support speculative development at this time.

A shift from home ownership to renting has helped decrease vacancy in the U.S. apartment market.

While single-asset sales remain dominant, multiproperty deals are becoming more prevalent.

Investors face mounting challenges as new supply remains constrained by a shortage of development.

A few investors expect the upcoming months to be very quiet with little or no sales activity.

Steady fundamentals have attracted a wider array of buyers to this once niche market.

Private money still represents nearly half of the capital entering the MOB market.

Some investors believe that investment activity has picked up greatly compared to a year ago.

Certain investors note that sales activity is occurring at the expense of those with shallow pockets.