Southern California Office Real Estate Blog

GREEN LEASING TOOL KIT

By Jodi Summers

Studies and Awards are praising green commercial buildings for creating higher occupancy rates, stronger rents and higher sales prices. As we’re in a down market for leasing, those in the know want to share, so the California Sustainability Alliance has developed and test strategies to green California’s commercial office space. This effort focuses on “green leasing”, i.e., integrating sustainability practices into the entire commercial leasing process. The Green Leasing Toolkit 2.0 includes insight on service provider selection; marketing of buildings, development of green specifications; request for proposal (RFP) and letter of intent (LOI) drafting; site selection and due diligence; and the negotiation and drafting of realistic and enforceable lease language.

The tools offered in Green Leasing Toolkit 2.0 are relatively easy to implement. These tools can be used by both landlords and tenants who manage or occupy large portfolios of facilities as well as small business owners and landlords who hope to green an individual building.

The Toolkit supports tenants and landlords in the following ways:

* Educating their organizations

* Developing their own green leasing policies and requirements

* Communicating policies and requirements to the market

* Measuring and comparing the green attributes of different buildings

* Developing specific lease language

http://sustainca.org/green_leases_toolkit

http://www.socalgreenrealestateblog.com/?p=52

SOCAL OFFICE PROPERTY SNAPSHOT – MAY 2010

By Jodi Summers

The specifics vary, but research is proving similar trends… the rate at which the office vacancy rate is growing has slowed on a year-over-year basis…but vacancy rates increased in the first quarter of this year.

A recent report by Cushman & Wakefield summarized the office vacancy scenario by stating, “In the coming years as recession gives way to recovery across the nation, vacancy rates will shift from rising to falling. But that shift is likely to be modest at first as businesses backfill existing space before increasing occupancy. Nevertheless as employment rises, space will be absorbed off the market and vacancy rates will begin to decline. Those cities that experienced moderate employment declines have the best potential for growth.”

Locally, the decline in vacancy could be impacted by concepts proposed in coalition with the California Chamber of Commerce. Known as CalChamber, their goal is the adoption of a simplified process for establishing flexible work schedules such as 4/10s and 9/80s. Senate Bill SB 1335 (Cox and Dutton) provides a process whereby the employee can simply request in writing and the employer may mutually agree to flexible schedules.

On a national level, CBRE Econometric Advisors reported that office vacancy rate increased by 30 basis points to 16.6% at the end of the first quarter. Although the increase was not as optimistic as the rise of 20 basis points in the fourth quarter of last year, the rate of increase is far better than the 70 basis points increase of a year ago. Grubb & Ellis results show that the vacancy rate rose by 50 basis points to 17.9% in the first quarter, versus an increase of 30 basis points in the fourth quarter of 2009. Cassidy Turley concludes that the national office vacancy rate increased from 16.4% in the fourth quarter of 2009 to 16.6% in the first quarter of 2010, noting that this is the highest vacancy rate since 2003.

In Los Angeles County in February, the unemployment rate was at 12.4% up from 10.9% the year prior.

The Grubb & Ellis results conclude, “The economy is in recovery mode, but it’s hard to tell by looking at the US office market.” First quarter absorption remained about even with the fourth quarter of 2009 at minus 7.3 million square feet. The reported noted that the biggest surprise of the quarter was a 1% uptick in the average asking rental rate for class A space to $31.10. The average class B rate was $23, an increase of .8 percent.

“This data series is volatile, so it is unlikely that rents have stabilized while the vacancy

rate continues to rise,” the report said. “There have been anecdotes of landlords in class A properties in primary markets pulling back on their concession packages, but this would most likely impact effective rates before asking rates. It will be interesting to see if the market can sustain this plateau next quarter.” In What Grubb & Ellis calls “a more definitive sign of recovery,” sublease space offered on the market decreased to 113 million square feet, down more than 10 million square feet over the past two quarters.

CBRE Econometric Advisors optimistically observed that some markets had vacancy declines during the first quarter. The CBRE researchers said that markets with high-tech-oriented economies and more geographically-dispersed suburban employment patterns-such as Austin, Raleigh and San Jose-made noteworthy strides. Another noteworthy city is Pittsburgh, which has outperformed throughout the recession and has a small but growing biotech and healthcare industry concentration, also declined by 70 bps and is boasting a 10.9% vacancy rate-its lowest in more than 10 years.

When viewed along with other property sectors, the first quarter was “the best quarter for commercial real estate in quite some time,” according to CBRE. The report cited “the decreasing rate of decline in commercial property fundamentals and the surprise of outright improvement in apartments, along with significant signs of life in the capital markets.”

According to Cassidy Turley, the data for the first quarter shows that demand for US office space continues to improve. It says that recent job growth figures indicate that the US economy will be consuming office space again by the second or third quarter of this year.

Cushman & Wakefield confirmed these results, concluding, “Overall national real estate markets are in better shape than one would anticipate given the sharpest decline in employment in more than 70 years. Yet the national vacancy rate is below the last peak in 2003 and far, far below the level of the early 1990s. This performance suggests that markets will emerge from this recession in better shape than in either 2003 or the 1990s.”

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https://www.cushwake.com/cwglobal/docviewer/AmericasEconomicPulseMAY2010.pdf?id=c33600033p&repositoryKey=CoreRepository&itemDesc=document&cid=c27400005p&crep=Core&cdesc=binaryPubContent&Country=GLOBAL&Language=EN&just_logged_in=1

http://www.globest.com/news/1642_1642/insider/184646-1.html

http://www.laedc.org/businessscan/index.html

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LOS ANGELES OFFICE REAL ESTATE SNAPSHOT – APRIL 2010

By Jodi Summers

It’s no secret that office space in Los Angeles has taken a huge hit. Take comfort in knowing we are not alone. Vacancy rates rose as demand fell, and rents followed. Globally office market rents decreased by 10%, the last time prices fell all around the world was 2003. What made this office downtown unique, according to a recent report Cushman & Wakefield, was that. “no market escaped and rents were down in every region; a trend not previously seen.”

Globally, Asia Pacific recorded the steepest decline year on year, with rents falling on average by 16%. Singapore, Hong Kong and Tokyo recorded falls of 45%, 35%

and 21% respectively, but they weren’t the worst locations. Ho Chi Minh City saw the largest compression in rents with a fall of 53%.

In terms of rental performance the America saw rents decline by 7% during 2009. South America saw rental levels move down by 5%, while in North America they fell further, by 8%. Midtown Manhattan remained the most expensive office location in the Americas region during 2009, but rents dropped 4% over the year. Thanks to rising exchange rates, the Brazilian cities of Rio de Janeiro and Sao Paulo became the second and third most expensive locations in the Americas, surpassing the cities previously in second and third place Boston and New York (Downtown).

Los Angeles did not fare nearly as well year as occupier demand slowed and vacancy levels increased. We saw lease rates drop 16%, averaging $51.68 per square foot annually. Our economic recovery is so fresh; rents will still remain low for the first half of this year, but should start to improve in the third quarter.

Overall, North American rental performance was more uniform with Canada, US and Mexico easing down by between 2% and 14% in 2009.

On a more optimistic note, South America and the Middle East & Africa showed the best performance in terms of rents, recording rental falls of 5% respectively. Argentina was the only South American country to record double digit falls.

The great irony comes in South Africa, which actually saw rising lease rates. South Africa supported regional performance in the Middle East & Africa.

Western Europe recorded an annual decline of 11%, but was peppered by more series declines in some major areas. Madrid, Central London, Dublin and Oslo recorded rental declines in excess of 20%, as these markets were particularly hard hit from the fallout of the financial crisis. Office rents in Central & Eastern Europe did not hold up nearly as well, with many cities recording rental declines of more than 20% - Kyiv and Moscow were the hardest hit. Kyiv fell a whopping 52% while Moscow lease rates dropped 33%.

The top three most expensive locations remained constant, Tokyo was ranked number one in the world, while London West End moved into second place. Hong Kong fell

from first to third position.

And now, good news – most global economies are expected to see positive GDP growth in 2010. Globally, rents are anticipated to reach their low point by midyear. Tenants will still retain the upper hand as vacancy rates remain high and demand remains low.

Of course, the recovery will vary from region to region and from city to city. Expect stabilization in the final quarter.

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http://iq.eur.cushwake.com/ve/ZZ29313083616869d87dT4

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LIGHTING – AN EASY STEP TO GREEN YOUR BUILDINGS

By Jodi Summers

Today’s favorite factoid: in the typical commercial building, lighting costs about $1 per square foot. According to the U.S. Department of Energy, lighting consumes as much as 30 percent of all electric expenses in commercial buildings nationwide, costing businesses some $37 billion.

Experts note that with recent advancements in lighting technology, it’s possible to half your lighting expenses. Your typical 200,000 square foot building may offer $100,000

annual savings through re-lighting.

Many buildings are currently using HID lighting. With High Intensity Discharge bulbs, light is produced by creating and sustaining an electrical discharge between two electrodes which excites a mixture of xenon gas and mercury for a bright white light.

By converting to fluorescent systems that use motion sensors.

The initial cost of Fluorescent lighting systems has barrier to wider use, but if you do the spread sheets you’ll realize this is short-sighted thinking for a big-picture building. Fluorescent lamps are considerably cheaper to operate and the lamps last far longer, reducing the long term cost-of-operation.

Another upside, if you don’t want that cold classroom look, recent technological improvements has produced “warmer” lamp colors, smaller fluorescent lighting systems. These innovations, plus the cost-efficiency have produced a renewed interest in using fluorescent lighting in residential and commercial locations.

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http://greenerbuildings.com/blog/2010/01/28/lighting-path-greener-bottom-line

http://www.grote.com/tech/dictionary/#H

http://nemesis.lonestar.org/reference/electricity/fluorescent/index.html

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LOS ANGELES OFFICE PROPERTY SNAPSHOT – MARCH 2010

By Jodi Summers

There was no money for buying commercial real estate in 2009, thus the global volume of commercial property sold last year fell 30% to $381 billion…but experts say growth is on the way. Among the bright spots is that sales of office, retail and industrial properties were up 29% collectively, concludes Real Capital Analytics.

“While the annual comparisons reflect broad declines since 2007, quarterly data show a marketplace that appears to be making a remarkable recovery,” suggests RCA.

Data suggests that volumes surged in Q4 to $147 billion, the first rise in seven quarters.

A measured economic recovery is underway in the nation, the state and Southern

California, confirms the 2010-2011“Economic Forecast & Industry Outlook” report by

the Kyser Center for Economic Research at the Los Angeles County Economic Development Corporation (LAEDC).

The outlook notes that in California, three sectors will see employment growth during 2010: information, private education and health services. Like the rest of the country, California unemployment will remain high with the LAEDC forecasting a 12.3 percent average rate in 2010, easing down to 11.9 percent in 2011.

“Southern California’s five metropolitan areas will also be in recovery mode during 2010,” said Jack Kyser, Founding Economist of the Kyser Center for Economic Research. “Like the nation and state, it will be a measured recovery, with more job losses and high unemployment rates in 2010.”

Los Angeles County is predicted see non-farm employment slip by 0.5 percent or by 19,200 jobs; Orange County should see a 0.6 percent decline or 9,200 jobs; Ventura County should also record a 0.6 percent drop in nonfarm employment or 1,700 jobs, while San Diego County should experience a 0.7 percent decline or 9,200 jobs. The Riverside-San Bernardino area will lag the other areas, with nonfarm employment falling by 1.1 percent in 2010 or by 13,000 jobs.

Despite the rise in commercial real estate noted by RCA, the Kyser Center for Economic Research predicts that “Nonresidential real estate activity will remain in the doldrums during 2010,” sites Jack Kyser, founding economist. “Office vacancy rates are at lofty levels around Southern California, with the Riverside-San Bernardino area highest at 23.6 percent at year-end 2009, and Los Angeles County low at 16.0 percent.”

In conclusion, optimism in the office real estate market is all relative. It’s better than it was last year, but still nothing like it was a few years ago.

“So far, investment activity is rebounding in a clear V shape but risks remain, and some fear the V could easily become a W,” cautions RCA. “Nevertheless, sentiment among investors is much improved and 2010 is starting with a broad but cautious sense of optimism.”

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We would like your real estate business. If we can provide you with more detailed information, please contact the SoCal Investment Group through Jodi Summers, Jodi@jodisummers.com. We look forward to working with you in your next real estate transaction.

**

http://www.globest.com/news/1604_1604/europe/183658-1.html

http://www.laedc.org/newsroom/releases/2010/100217_LAEDC%20Economic%20Forecast%202-17-10.pdf

http://www.joeroselaw.com/cms/Portals/0/Employees%20Group.jpg

LOS ANGELES 2010 – OFFICE BUILDING REAL ESTATE PREDICTIONS

by Jodi Summers

Put on your sunglasses, the future of the Los Angeles office market is starting to look bright. After two years of job cuts, payrolls are predicted to expand payrolls minimally in Los Angeles County in 2010, according to the 2010 National Apartment Index report by Marcus & Millichap, and the 2010 predictions of the Urban Land Institute.

Industry sages such as Xavier Gutierrez, Managing Director and Principal, Phoenix Realty Group, observes, “Los Angeles is better positioned than most areas to survive the residential and commercial real estate fallout due to its very diversified economy.  Since the 1990s, when the local economy was heavily dependent on the defense industry, LA has cemented its importance as the gateway to Asia, luring US companies that want to take advantage of foreign markets through the country’s largest port and the massive infrastructure of rail and roadways linking warehouse facilities in LA and the Inland Empire.”

Conservative investing is the tone. Marcus & Millichap suggests that “economic headwinds remain formidable…. “The recovery will be muted because of slow job growth.”

The NAI concurs, noting, “Following a loss of 115,000 jobs in 2009, payrolls are forecast to expand by 0.3 percent this year, with the addition of 13,000 positions.”

Currently, it is estimated that around 51 million square feet of vacant office space is available for lease throughout the Inland Empire and Los Angeles and Orange counties. The Los Angeles Economic Development Corporation reports that forward thinking companies in fields such as technology, entertainment and R+D are using this low rent era to upgrade to bigger or more prestigious space so they are well-positioned for the rebound.

Experts say the wild card is commercial mortgage maturities, which are in the hundreds of billions of dollars at this point.

Gutierrez is optimistic. “Private equity sources are ready to pounce on cash-generating distressed assets and just waiting for the debt markets to come back and the economy to stabilize with job losses bottoming out,” he notes.

PREQIN, which specializes in offering services for companies involved in alternative investments, suggests that given the size of Southern California’s population and economy, $173 billion of private equity capital is waiting to be invested from a worldwide set of sources.

All sources seem to conclude that there is an optimistic future for the Los Angeles office market.

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http://www.uli-la.org/node/382

http://www.marcusmillichap.com/aboutus/News/Current/020510_los_mm.asp

http://www.globest.com/news/1580_1580/insider/183133-1.html

http://www.laedc.org/

http://www.preqin.com/

LOS ANGELES COUNTY OFFICE PROPERTY SNAPSHOT – FEBRUARY 2010

SALES ARE ON THE RISE, BUT PRICES ARE WAY DOWN

By Jodi Summers

Chilling words from the Los Angeles Times regarding the Los Angeles area office real estate market, “Industry experts predict properties will have lost 40% to 50% of their value from the peak of mid-2007 by the time the market presumably reboots next year.”

But, not so bad, when you look at the statistics comparing January 2008 vs. January 2010 – in Los Angeles County, median price of sold properties is already down 99%.

Having said that, the landslide drop in prices is triggering activity in the office building sector. Comparing Jan-08 vs. Jan-10: The number of sold properties is up 33%. The 4Q market stimulus which saw the U.S. economy bound up by +5.7% (seasonally adjusted annual rate), according to estimates of the Bureau of Economic Analysis, pushed buyers into the market place. Contrasting Jan-08 vs. Jan-10, the number of under contract properties is up 300%.

“I think the next two years are going to be very tough for the office market,” said Richard Green, director of the Lusk Center and a co-author of the study. “Downtown L.A. is doing a little better than other sub-regions but it’s not immune. You have things like law firms laying people off, so when their lease rolls over they’ll need less space.”

The overall economy has shown signs that the recession may be easing, but that doesn’t hint at an imminent turnaround in office markets, which are considered lagging indicators, Green said.

“It’s the economy, then jobs, then office, in that order,” Green said. “…It’s not until jobs start growing — it’ll be six months after that before the office market picks back up.”

As for the West Side’s office market, Keith Fielding of the Klabin Co. predicted continued price compression and thawing in capital markets. “There’s a lot of money on the sidelines waiting to buy, but prices are not yet where buyers want them.”

Which is why you’ll notice that the number of for sale properties is up 88% from two years ago…and, thankfully, number of sold properties is up 33%. Let us hope the office market will continue to show promise.

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We would like your real estate business. If we can provide you with more detailed information, please contact the SoCal Investment Group through Jodi Summers, Jodi@jodisummers.com. We look forward to working with you in your next real estate transaction.

**

http://www.cirbdata.com/

https://www.terradatum.com/

http://www.globest.com/news/1590_1590/washington/183353-1.html

http://www.laedc.org/eedge/index.html#1

Http://www.socalindustrialrealestateblog.com

http://www.globest.com/news/1592_1592/losangeles/183380-1.html

http://www.ladowntownnews.com/articles/2009/12/18/news/doc4b2c047540dd1295124814.txt

http://articles.latimes.com/2009/nov/05/business/fi-commre-outlook5

GREEN OFFICE AND INDUSTRIAL REITS SHOWING PROMISE

GREEN OFFICE AND INDUSTRIAL REITS SHOWING PROMISE

By Jodi Summers

Office and industrial REITs expect to remain tightly focused for the balance of the year –evaluating the damage to occupancy and rents twisted by current economic conditions.Expect REITs to be greening and negotiating sexier leases mitigate potential damage.

Buildings are responsible for 40% of emissions, and commercial sectors such as industrial and office are greening to cut costs and attract hipper clients.

Taking such savvy acts, coupled with the 2^nd + 3^rd quarter strengthening of the economy have motivated market observers to observe that the publicly traded REIT market at bottom or near bottom.

A recent CBRE Investors report noted that “the bottom of the capital market cycle may be close,” with pricing metrics on U.S. commercial real estate starting to look attractive again to buyers.

“Much of the recent negative press about commercial real estate reflects the experiences of distressed owners,” CBRE noted in their report. “However, from

prospective buyers’ perspectives, many pricing indicators look historically favorable,” based on the current widening spread between aappraised-value cap rates and risk-free 10-year U.S. Treasury bonds.

“Just as REITs led the private markets in 2007 and 2008, it is probable that the recent share-price recovery is an early indicator that a trough in private markets is coming soon.”

Energy saving upgrades such as timed lighting + cooling, white roofs and thin solar films to cover the windows of office buildings are cutting back on cooling costs and increasing user comfort.

CoStar’s office and industrial market report stated that average sale prices, while down significantly from their 2007 peaks, are at or close to their historical averages. Cap rates have expanded sharply during the same period but are also in line with historic averages.

REITs comprise just 10% of the commercial real estate market, but wield significance as a bellwether for future commercial real estate conditions.

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http://www.costar.com/News/Article.aspx?id=6A1CBF26B572D3A957377280529227C0&ref=100&iid=143&cid=383F14EEE265B182474DA2442BACBBBF

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SAM ZELL’S INVESTMENT STRATEGIES

SAM ZELL’S INVESTMENT STRATEGIES

By Jodi Summers

Expectations of a crash in commercial real estate market are “greatly exaggerated,” noted media and real estate magnet Sam Zell recently in Chicago. “Everyone is waiting for the grave dancer to come and exercise his magic potion, but you need two to tango.”

Speaking at the at the first “Invest for Kids” conference in downtown Chicago, Zell noted that owners of office and apartment buildings today have no incentive to sell. By 2011 or 2012 they will likely be able to fill their vacancies, albeit at rates 30% below their peaks, because demand will catch up to supply, he observed.

Optimistically he shared the fact that the U.S. population is growing and with fewer building starts in the past decade, demand for housing will rise.

Then again, Mr. Zell has made some interesting predictions. Financial mogul Sam Zell, owner of the Tribune Co., recently told an Israeli business conference that the U.S. real estate market will be in recovery by spring 2009.

Chicagoan Sam Zell is best known for owning and defaulting such famous media properties as the Los Angeles Times, Chicago Tribune and New York’s Newsday. Media aside, Zell’s fame and $6 billion net worth originate from his mastery of real estate investing principles. This mastery, demonstrated repeatedly over a 40-year career, results from Zell’s acute understanding of real estate market mega-trends and his dedication to turning around troubled properties.

Zell got into real estate investing in the 1960s, during the time he received his bachelor’s (1963) and law degrees (1966) from the University of Michigan. It started when he finagled his way into a property management role with a local landlord. Next, Zell began buying distressed properties, fixing them up and rent them to students. Zell was a hands-on landlord who put a lot of energy into scouting and fixing up locations.

According to About.com, “In 1969, Zell and his partner Robert Lurie formed Equity Properties Management Corp. to centralize Zell’s rapidly diversifying investments in real estate. In the 1970s, Zell expanded beyond his initial interest in residential real estate and began to acquire office space under the aegis of Equity Office Properties Trust, or EOP. Zell structured his business as a series of real estate investment trusts, or REITs, under the Equity umbrella. EOP was one REIT; Equity Residential Properties Trust was another. The REIT structure allowed Zell to radically reduce his corporate income taxes. In addition to exploiting the REIT tax structure, Zell polished his skills as a salesman and convinced an increasing number of investors to entrust their money to him.”

Zell, with Robert H. Lurie went on to found the Equity Group Investments, LLC, which spawned three real estate public companies, including: Equity Residential, the largest apartment owner in the United States; Equity Office Properties, the largest office owner in the country; and Manufactured Home Communities, a mobile home company. In addition, Zell has created a number of public and private companies.

He proceeded to grow his office properties - Equity Properties Management REITs into strong national brand names. This project met with marginal success, as enterprises tended to buy office space based on local differentiators such as price and management, not on national differentiators such as brand name. Zell had to sell some office space for less than what he paid for it, but this did not cost him his whole empire, and he sold this part of his portfolio to Blackstone for $36 billion in 2006, and in 2007, Zell acquired a portfolio of newspapers owned by the Tribune Co., including the Chicago Tribune, Los Angeles Times, Newsday and Baltimore Sun. …an odd time to buy newspaper franchises.

Currently, Zell recently raised $625 million to invest in “credit opportunities.”

“In every market and in every situation there is opportunity,” Zell concluded.

“In my 40 years in real estate, I’ve found there is only one metric that matters — replacement cost.” He noted that the spread between a building’s replacement cost and its economic value is as wide today as it was in 1993 — mainly because the cost of construction has increased.

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http://www.businessweek.com/the_thread/hotproperty/archives/2005/11/zells_favorite.html

http://www.chicagorealestatedaily.com/cgi-bin/news.pl?id=36105&print=1

http://www.socalmultiunitrealestateblog.com/?p=201

http://homebuying.about.com/lw/Business-Finance/Real-estate/Sam-Zell-Real-Estate-Magician.htm

http://en.wikipedia.org/wiki/Sam_Zell

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LOS ANGELES OFFICE PROPERTY SNAPSHOT – NOVEMBER 2009

LOS ANGELES OFFICE PROPERTY SNAPSHOT – NOVEMBER 2009

By Jodi Summers

Each quarter the UCLA Anderson Forecast reports the state of the economy and the state of real estate with clarity and accuracy. If what the Anderson School sages is correct, economic growth will soon begin again.

According to Anderson School Senior Economist David Shulman, “We forecast that real GDP will increase at 2.1% in the current quarter and 2.3% in the fourth quarter. For all of 2010, we forecast quarterly growth to average 2% with noticeable improvement at the end of the year.”

The downside for office is that the unemployment rate will be above 10% well into next year…that’s nationally. California is lagging behind the country, but will be buoyed by increased consumer confidence and ”an increased demand for California produced goods.”

This reflects in Los Angeles office space, where prices are down 77% from October 2007. Not only that, but the volume of office properties for sale in Los Angeles is up 45%, while the number of properties that have sold has halved.

Statewide, employment is forecast to contract -3.7% in 2009 and will barely grow at a 0.2% rate in 2010. The unemployment rate will grow to a high of 12.2% for 4th quarter 2009 and will average 11.6% for the year. Though the state economy will be growing by 2011, it will not produce enough jobs to get the unemployment rate below double digits until the end of that year.

Looking for some specific details? Would you like to be our client – we’ll take good care of you. Contact the SoCal Investment Group through Jodi Summers, Jodi@jodisummers.com.

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http://www.clarusresource.com/

http://www.uclaforecast.com/contents/archive/2009/media_91609_1.asp

http://www.dqnews.com/Articles/2009/News/California/Southern-CA/RRSCA091013.aspx