Q1 in U.S. Office Market

CoStar data shows that several of the 54 largest U.S. office markets posted negative net absorption in the first quarter, which is the one area that CRE analysts will be tracking carefully in coming months. According to the group, the first three months of 2015 provided another 'feel good' quarter for the U.S. office market as office rent growth and elevated leasing and development activity continued to reflect strong fundamentals as brisk business activity and growing confidence in the broader economy encouraged business to lease space and investors to acquire office buildings. An excerpt from their reporting follows:

"While we still expect healthy overall growth in both 2015 and 2016, we view the office market as returning to a balance between supply and demand and also between tenant and landlord strength," said Walter Page, CoStar Group, Inc. Director of U.S. Research, Office.

CoStar analysts expected a slow down in net absorption during the first quarter after the strong 33 million square feet of net absorption in fourth-quarter 2014. However, the lower-than-expected level of absorption for first-quarter 2015 is somewhat concerning, especially because the slowdown appeared to impact other property types, Page said.

Net absorption fell below the net rate of new office building completions for the first time in five years during the first quarter. The narrow spread between newly delivered supply and occupancy demand resulted in a flattened vacancy rate of roughly 11.3% in the quarter in CoStar Portfolio Strategy's national index of the 54 largest U.S. metros.

For more news and information visit Blumberg Partners.

Preferred Office Locations

NAIOP, the trade association for developers, owners and investors in industrial, office and related commercial real estate, hosted a webinar with Emil Malizia titled Preferred Office Locations: Comparing Location Preferences and Performance of Office Space in CBDs, Suburban Vibrant Centers and Suburban Areas, which shines a light on location preference when picking an office location. The study, which combines expert opinion and accurate property-level data, provides reliable information about emerging location preferences across major U.S. office markets and the comparative performance of office space in CBDs, suburban vibrant centers — defined as amenity-rich, mixed-use, "live, work, play" locations — and typical single-use suburban areas.

The study sought to address five questions:

1. Do office tenants prefer CBDs to suburban areas?

2. Do office tenants prefer suburban vibrant centers to typical single-use suburban environments?

3. Are office properties in CBDs performing better than those in typical single-use suburban office areas?

4. Are office properties in suburban vibrant centers outperforming those in typical single-use suburban office areas?

5. Are suburban vibrant centers preferred to or performing better than CBDs in their market areas?

Overall, office tenants showed no strong preference for either downtown or suburban locations. The study did, however, reveal a clear preference for suburban vibrant centers over typical single-use suburban office environments, and demonstrated that office properties in suburban vibrant centers are outperforming those in typical single-use suburban office areas on almost all metrics.

To download and watch the webinar, click here. For more news and information visit Blumberg Capital Partners.

Report Shows DC Real Estate Slowed

A new article from the Washington Business Journal examines a quarterly report released by CB Richard Ellis showing that commercial real estate in the DC Metro area has cooled a bit. The report shows that vacancy rates fell to 12.6% in the second quarter from 12/7% in the previous quarter, while the office vacancy rate little changed at 10%. According to the article, CB Richard Ellis reported that only four of the top 25 deals in the District were with the federal government, and only one government deal over 10,000 square feet was recorded in suburban Maryland in the second quarter, a two-year low.

"While we remain one of the strongest and most stable commercial real estate markets in the country, everyone seems to have hit the pause button as they take a "wait and see" approach," said John Germano, executive managing director of CBRE's Washington-Baltimore region. "We are poised to see improvement in subsequent quarters but not until there is a clearer picture of where the economy is headed and what will happen with regard to the federal government, a key driver of real estate activity here in our region."

For more news and information visit Blumberg Capital Partners.

JV Secures $23M Loan for DC Office Condo

In December of last year, Monument Realty and Angelo, Gordon & Co. bought 2055 L Street NW in Washington, DC in an all-cash deal; this month, they've secured a 23.2 million senior loan commitment from PCCP LLC for the acquisition and re-development financing of the property. With this loan in place, the joint venture will now commence a six-month rehabilitation to the owned 102,000 square foot condominium office portion of the 237,000 square foot building.

"The owner plans to renovate the property to position it as a quality Class A asset," said John Randall, senior vice president at PCCP, LLC. "The overall competitive vacancy rate in the CBD is approximately 6.4 percent. Once the renovation is completed, its quality and key location will be desirable to high-profile law firms, lobbyists, and non-profit organizations and associations."

Verizon sold the property, represented by Cushman & Wakefield, to the JV for $12.75 million. The JV plans to move forward in the coming months with a full renovation of 2055 L that will improve the now Class B building’s common areas, facade and building systems and add ground-floor retail space.

For more news and information visit Blumberg Capital Partners.

NYT Takes a Look at Office Sublets

The New York Times published a new article titled "Manhattan Office Sublets Show Benefit as Markets Tighten" examining the current trend in NYC. Data from Newmark Knight Frank shows that, as of April, Downtown reflected a 40% drop in sublease space with Midtown down 35%. An excerpt from the article:

Conventional wisdom holds that subleasing — in which tenants vacate their offices before the end of their lease and rent it to another tenant at a discount — has a negative impact on the market. Landlords must compete against the lower rents, while tenants bristle at the restrictive terms that often are a part of a sublease.

But the industry perspective is now shifting. Tenants are embracing subleases as a means of locking in below-market rents, while landlords, who are facing fewer vacancies, are using it to attract tenants and then converting the leases into direct deals when the subleases expire.

"Landlords don’t usually like the fact that sublease space rents for less, and tenants don’t like that the leases offer little flexibility," said Moshe Sukenik, an executive vice president and principal at Newmark Knight Frank. "But there is a silver lining that can result in a win-win for everyone involved."

For more news and information visit Blumberg Capital Partners.

Wells REIT Purchasing DC Office Complex for $615M

Wells Real Estate Investment Trust II, also known as Wells REIT II, announced this week that it had signed a purchase and sale agreement for a 679,710 square foot office complex in Washington, DC for approximately $615 million excluding closing costs according to a National Real Estate Investor article. The deal is expected to close early this month as Wells takes ownership of the property from an affiliate of Beacon Capital Partners.

Built in 1990, the thirteen-story office property known as Market Square is a class A office property located on Pennsylvania Avenue between the U.S. Capitol and the White House. The property is certified LEED silver and is ENERGY STAR rated, and serves as headquarters of leading global law firms, Fulbright & Jaworski, Shearman and Sterling and Mintz Levin. Renowned FORTUNE 500 companies represented on the tenant roster include Procter & Gamble, Novartis, AstraZeneca, Bayer Corporation, Florida Power & Light and Waste Management.

Jones Lang LaSalle’s Scott Homa noted of the DC marketplace that "...year-to-date, the Metro DC market has tallied 21 transactions for $1.5 billion. Twelve of these deals accounting for $1.25 billion were concentrated in Downtown Washington, DC. In 2010, it took the metro area as a whole until June 2010 to reach the $1.5 billion it has registered in the first two months of this year."

For more news and information visit Blumberg Capital Partners.

New Report Shows Office Market Growth Trend

Cassidy Turley released a new report this week on the U.S. office market showing a positive growth trend after bottoming in the first quarter of 2010. Kevin Thorpe, Cassidy Turley’s chief economist, said that "the sustained improvement in demand for space, now spreading beyond the largest metros, coupled with tightening vacancy is certainly encouraging. However, the employment situation does not inspire robust projections for 2011. The U.S. economy is on track to build on the growth in 2010, but the U.S. office sector is still a minimum of 18 months away from a balanced market."

The office market showed signs of progress in 2010 as new lease deals added up to 80,000 square feet of positive absorption, compared to a loss of 418,000 square feet in 2009. According to Cassidy Turley, the national office vacancy rate fell 10 basis points in the fourth quarter to 16.7% and average asking rents registered at $21.24, down 2 cents from the previous quarter. The report also shows that 5.3 million square feet of new office space was delivered in the U.S. office market and there was 30.3 million square feet under construction – indicating two more years of limited new supply.

To read the full report, click here. For more news and information visit Blumberg Capital Partners.

NYT Says Office Market is Making a Comeback

A new article from the New York Times reports that, for the first time since the collapse of the commercial real estate market, investors are returning with interest in office buildings with some properties commanding prices "reminiscent of the boom years". An excerpt:

Though the market is only now becoming active, last year about $27.7 billion worth of office properties worth $5 million or more had changed hands through mid-December, more than twice the volume in 2009, according to Real Capital Analytics, a New York research firm that tracks sales.

Some deals have been so costly that buyers have had to settle for low initial rates of return of 6 percent or even less. These yields, known as capitalization rates, have fallen faster for office buildings than for any other type of commercial real estate, Real Capital Analytics said.

To read the full article, click here. For more news and information visit Blumberg Capital Partners.

New Wishard Project Gets Developers

Duke Realty and Browning Investments have been selected by the Health and Hospital Corporation of Marion County to develop a new office building for the New Wishard Project in Indianapolis according to the Indianapolis Business Journal. The new faculty building will be constructed in a 200,000 square foot lot adjacent to the new Wishard Hospital which is currently under construction near the campus of IUPUI.

The $754 million New Wishard project includes a 327-bed inpatient hospital and is scheduled for completion at the end of 2013. Wishard project leaders registered the 1.2 million sq. ft. campus to achieve United States Green Building Council (USGBC) Leadership in Energy and Environmental Design (LEED) Silver certification that will make it the first newly built hospital in Indiana and one of 10 in America certified LEED Silver or higher.

"To be selected to develop part of The New Wishard campus provides Duke Realty with yet another opportunity to demonstrate our support of this community and to provide a quality facility that will enhance the health of residents through our expertise in health care development," said Denny Oklak, Chief Executive Officer of Duke Realty. "We are proud to be involved in the development of The New Wishard campus," added Michael Browning, President, Browning Investments. "Our experience will aid us in ensuring that Wishard receives a facility that enables them to succeed in their mission."

For more news and information visit Blumberg Capital Partners.

JP Morgan Purchases Lehman HQ in London for £495M

J.P. Morgan announced today that it had acquired 25 Bank Street in Canary Wharf for £495M according to a Guardian article. The building, home of Lehman's European arm until 2008, will become the new European headquarters of J.P. Morgan's Investment Bank in 2012. In addition to this property, Morgan has also agreen to purchase 60 Victoria Embankment in London, a building that the firm has leased since 1991 and houses its Treasury and Security Services Division. The City minister, Mark Hoban, described JP Morgan's decision as "excellent news". Morgan purchased the Bank Street building from Canary Wharf Group and has said it will continue to work with the group to develop the Riverside South site at Canary Wharf for future use.

"These buildings ensure that our employees will have the necessary technology, infrastructure and amenities to take our businesses forward. Even during the recession, we have continued to invest and grow our businesses internationally," said Jamie Dimon, Chairman and CEO of J.P. Morgan. "These properties are long-term investments and represent our continued commitment to London as one of the world's most important financial centres."

For more news and information visit Blumberg Capital Partners.

Healthcare Trust of America Picks Up $122.62M Portfolio

Healthcare Trust of America, Inc., a self-managed, publicly registered, non-traded real estate investment trust, has acquired a six-building medical office portfolio from Columbia Development Companies for $122.62 million, or $190.54 per square foot. The 643,555-square-foot portfolio includes buildings in Albany, NY and Tampa, FL and is roughly 95% leased with large, investment-grade regional healthcare systems and specialty medical practices as primary tenants. Healthcare Real Estate Capital oversaw the disposition.

The properties include:

711-713 Troy Schenectady Road, a 258,953-square-foot health park in Latham, NY;

400 Patroon Creek Blvd., a 166,075-square-foot medical office building in Albany, NY;

1365 Washington Avenue, an 80,546-square-foot medical arts building in Albany, NY;

1375 Washington Avenue, a 40,941-square-foot medical arts building in Albany, NY;

1092 Madison Avenue, a 14,800-square-foot medical office building in Albany, NY;

13020 N. Telecom Parkway, an 82,240-square-foot orthopedic medical building in Tampa, FL.

For more news and information visit Blumberg Capital Partners.

Google Purchasing Manhattan Office Building for Over $1.8B

In a deal that's reportedly valued at over $1.8 billion, Google now owns an entire New York City block with the latest acquisition of 111 Eighth Avenue. The deal for the 2.9 million square foot property is the biggest transaction for a single building in the U.S. this year according to a Wall Street Journal article. Google currently occupies roughly 500,000 square feet of space in the building, and won the bid for the purchase of the property due in part to its willingness to close the deal by the end of the year. The building, which once housed the headquarters of the Port Authority of New York and New Jersey, was being marketed by Douglas Harmon, a senior managing director at Eastdil Secured. The building last changed hands in 1998.

"You can't get a stronger vote of confidence for the strength of the New York office market," Dan Fasulo, managing director of Real Capital Analytics, told Bloomberg. "When one of the most prestigious modern corporations makes a bet on your marketplace, it's not just a bet on your real estate, but in New York as a place to retain and attract the best talent."

"They can afford to pay more for this building because they're already the occupant," said Ben Thypin, Real Capital senior market analyst. "A third party that wasn't already a tenant might not have been able, actually definitely wasn't able, to bid as high as they were."

For more news and information visit Blumberg Capital Partners.

First Potomac, AEW Acquire DC Office Building for $65M

First Potomac Realty Trust and AEW Capital Management entered into a 50/50 joint venture to acquire 1750 H Street, NW, in Washington, D.C. for $65 million. National Treasury Employee's Union sold the mult-story Class A office building in a deal that was contingent on the buyers assuming a $31.4 million loan from the seller.

"It fits well into our long-term business plan to grow our presence in the downtown D.C. market, increase the number of office buildings we own, and continue our focus on high-quality properties," said Douglas Donatelli, chairman and CEO of First Potomac in a Washington Business Journal article. 1750 H Street, NW is a 10-story 111,000-square-foot office building located approximately three blocks from the White House in Washington, D.C.'s central business district. The building is 100 percent leased to six tenants, including 46,900 square feet on the top four floors that is leased back to the seller, the National Treasury Employee's Union (NTEU) for a ten-year term.

For more news and information visit Blumberg Capital Partners.

Google Considering $2B NYC Office Buy

A new article from the New York Post reports that Google is considering an incredibly large buy-in to the Chelsea neighborhood of New York City at a$2 billion price tag, a transaction that would value the property at $690 per square foot. The trophy building at 111 Eighth Avenue is only 18 stories tall but boasts 2,950,000 square feet of office space making it the second largest building in New York City. Google already leases over 550,000 square feet of the property with other tenants includig Nike, Sprint, WebMD, CCH Legal, Deutsch Advertising and Armani Exchange.

Taconic Investment Partners originally acquired 111 Eighth Avenue in January 1998 as part of a portfolio of assets that also included 95 and 99 Wall Street and 100 William Street. The company has since deployed a $50 million capital improvement program that overhauled vertical transportation, lobbies, common corridors, power plants and fuel delivery systems.

For more news and information visit Blumberg Capital Partners.

Boston's John Hancock Tower Sold for $930M

Boston Properties Inc. announced today that it would purchase the John Hancock Tower and Garage in Boston in a deal valued at $930 million according to the Associated Press. The purchase price reportedly consists of $289.5 million of cash plus the assumption of roughly $640.5 million in debt. The debt being assumed from the seller, a joint venture between an affiliate of Normandy Real Estate Partners and an affiliate of Five Mile Capital Partners, is a securitized senior mortgage loan that bears interest at a fixed rate of 5.68% per annum and matures in January 2017.

"The bidding was as fierce as anything I've ever handled during my 30 years in this business," said Robert Griffin, who brokered the sale for Cushman & Wakefield, a real estate services firm.

The John Hancock Tower is an iconic 62-story, approximately 1,700,000 rentable square foot office tower located in the heart of Boston's Back Bay neighborhood and is New England's tallest building. The garage is an eight-level, 2,013 space parking facility. As New England's tallest building, the John Hancock Tower features a 360-degree panoramic view of the Back Bay, Charles River, Cambridge, the Public Gardens, Boston Harbor and Financial District.

For more news and information visit Blumberg Capital Partners.

Energy Crossing I in Dallas Trades Hands

M&I Bank unloaded the deed for Energy Crossing I in Dallas, Texas to Lincoln Property Company, acting for a public pension fund. The sale price was undisclosed, but Lincoln acquired the building free and clear with Holliday Fenoglio Fowler and Stream Realty Partners representing the seller in the transaction according to CoStar.

The 239,166-square-foot office building at 15021 Katy Freeway, developed by Opus West, is currently 20% occupied and claims KBC Advanced Technologies Inc. and Electromagnetic Geoservices ASA as two of its long-term tenants. Energy Crossing I is a Class A, six-story office structure with a four-story, 900-space parking garage on 5.3 acres in the Energy Corridor submarket.

For more news and information visit Blumberg Capital Partners.

Tenants and the Recession

The National Bureau of Economic Research announced that the recession ended and economic recovery began in June 2009, but according to CRE service providers economic conditions for most American tenants are still in the pre-June 2009 cycle. CoStar has interviewed a group of real estate professionals taking a closer look at the divide between overall economic conditions and real estate needs, noting that it takes longer for businesses to see a need to expand into more space post-recession.

"Many mid-size and smaller companies are afraid of the possibility of a double dip recession. They are unconvinced that the recession is really over, despite the statements by several so-called economic pundits that the it "technically" ended in June 2009," said Howard Applebaum, president of Corporate America Realty & Advisors, a tenant rep firm in Rutherford, NJ. "Until we see greater access to financial liquidity and greater financial leverage for business and real estate borrowings, companies will remain conservative and avoid adding staff. What must be feared here is that without the capability of loosening the credit restrictions that banks have placed, it can lead to further staff reductions as companies that do not have access to "Wall Street" capital will burn through their cash holdings."

"Companies in the past two to three years have downsized and extended their leases; these companies do not have excess space," said Scott Abernethy, senior vice president of Cassidy Turley in Cincinnati, OH, noting that 90% of the companies they talk to are not hiring. "However, many firms with leases farther out in the future have excess space that they can't unload. If the economy improves, they feel they can backfill that excess."

"My feeling is true recovery will not occur until unemployment and sentiment/confidence returns,"said Kenneth W. Colwell, senior leasing and sales associate of Paragon Real Estate Group in San Francisco. "Only users who are recession-proof will expand or relocate, that includes medical and government, with startups looking for rock bottom subleases deals."

For more news and information visit Blumberg Capital Partners.

GSA Signs 523,500 SF DIA Lease in Metro DC

Cassidy Turley announced that the U.S. General Services Administration (GSA) has awarded a 523,482 square foot lease for the Defense Intelligence Agency (DIA) to occupy Patriots Park in Reston, Virginia just outside of DC. Situated in two towers located at 12310 Sunrise Valley Drive, a brief drive out Interstate 66 from DC proper, DIA will enter into a 20-year lease at the property located near the Reston Town Center. The complex is currently undergoing a redevelopment by Boston Properties to meet the Department of Defense’s anti-terrorism/force protections standards. The pricing of the deal was not disclosed.

"Patriots Park is the logical choice for the DIA’s new facility," said Darian LeBlanc, senior managing director of government services for Cassidy Turley, which represented the GSA in the deal. "This selection allows them to consolidate multiple locations into a highly secure campus environment, central to all of Reston’s fantastic amenities and Metro’s Silver Line." DIA is headquartered at the Pentagon in Washington, D.C., with major operational activities at the Defense Intelligence Analysis Center (DIAC), Washington, D.C., the National Center for Medical Intelligence (NCMI), Frederick, Maryland, and the Missile and Space Intelligence Center (MSIC), Huntsville, Alabama.

For more news and information visit Blumberg Capital Partners.

US Bank Opens New Overland Park Service Center

U.S. Bank CEO Richard Davis cut the ribbon today on a new service center in Overland Park, Kansas, a facility that will bring 1,300 new jobs to the area. The 24-hour call center at 12800 Foster Street, previously developed as the Capital One Home Loans headquarters building, is a 185,000 square foot office development leased to U.S. Bank; the bank expected to spend $21 million in improvements on the property when they entered into the agreement this past December.

Davis made it a point to note during the ceremony that the building, which currently houses 250 employees and expects to gain another 250 by the end of the year, is housing new jobs and not employees shifted from existing positions, spurring employment gains in the area. "We've been more impressed since we've got here than we were when we made the original decision," Davis said. "Your business community collaborated without any need for attribution. You told us there was unchecked opportunity for growth, so we can get as big as we need to be without worrying about tapping out the market. You delivered us some very positive incentives to be a part of this community, which will result in very good returns on your investment."

For more news and information visit Blumberg Capital Partners.