Clay & Company » A Texas Commercial Real Estate Blog

Congratulations to Timothy Clay, Amy Silvey, & Kevin Dalrymple of Clay & Company who received Honorable Mention for the William C. Jennings Commercial Transaction of the Year from the Texas Association of REALTORS®. See the write up in the March issue of Texas Realtor Magazine.

Over 2011 and 2012, Clay & Company partnered with Lonestar Construction to locate key sites in the Greater Houston area, procure construction financing, and design and begin construction on three facilities for three different triple-net lease tenants. The $12,154,795 project included three properties in three different counties, 136,286 square feet and 16.5 acres; three triple-net leases; three tenants, three lenders, two different partnerships, and nineteen individual partners.

Paul Bettencourt, CEO, Bettencourt Tax Advisors, shares the following:

Houston’s Industrial Sector, has seen an 11.8% drop to 5.2% in Vacancy Rates from Q311 to Q312, even though there were 26 projects (1.8 mill SF) completed in 3Q12 and 3.8 mill SF currently under construction.

The January 2013 edition of REDNews includes these notes & predictions from the Boyar Miller Breakfast Forum:

• Industrial supply is trailing demand

• 5.3%industrialvacancyoverall

• Katy is next boom area for industrial demand

• Houston is finally recognized as an important international gateway 
city, and institutional investors “need” to have us in their portfolios

• Cap rates for investment sales in the industrial arena are in 
the 6-8.5% range

• Baytown area/Ameriport is getting a lot of attention

• Lots of design/build coming out of the ground fast to meet 
immediate demand

• Energy industry is driving industrial expansion-also foreign trade 
and healthcare

• Panama Canal expansion lagging-maybe be a year late opening-count 
on 2015

The entire net lease market has seen compressing cap rates. The combination of multiple factors has led to this declining cap rate environment. First, we have seen that low interest rates and a low yield investment environment has impacted cap rates. Because cheap debt is available and the risk free investment returns are so low, investors are able to pay premuims (lower cap rates) for net lease assets and still achieve a spread that is appealing in today’s market.

There is limited net inventory availble due to the fact that retail slowed their expansion and growth plans since 2008. Coupled with a flight to quality by investors the simple fundamentals of supply and demand are driving cap rates lower.

Via here and here.

by Ron Consolino for Chron.com

Q: I found space to lease for my new washateria, and the landlord has given me her standard lease contract. How do I know if I should just sign it?

A: Before you sign anything, make sure you understand and agree with the terms of the contract.

“There is no such thing as a ’standard lease,’ and landlords almost always negotiate,” says Benjamin Miller, who practices business and real estate law in Houston. Don’t lose sight of the fact that the “Standard Form Lease” represents the landlord’s wish list and, if not appropriately modified, may not serve your interests if issues arise.

A lease is much like any business agreement in that it sets out parameters of a business relationship. You cannot easily break or change a commercial lease. It is legally binding.

When everything goes as planned, most any lease will serve the parties well. The true test occurs when there are hiccups.

There are, in general, three kinds of commercial leases. With a gross lease, the renter pays the landlord a fixed rent. It is up to the landlord to pay all the expenses of operating the building. In a triple net, or NNN, lease, the tenant not only pays base rent, but also part of the building’s operating costs. These costs include property taxes, insurance and common area maintenance, or CAM. Hybrid leases have features of both.

NNN costs are shared according to the percentage of the tenant’s square footage to the total building square footage. So, Miller advises, “Pay attention to what is included in NNN costs and get the right to audit the landlord’s cost records.”

CAM is generally the amount of additional rent charged to the tenant to maintain common areas shared by all the tenants and from which all tenants benefit. Examples include: repairs, janitorial and trash services, and personnel costs associated with the property. Most often, this does not include capital improvements, tenant build-out expenses, legal fees, costs for services to other tenants and commissions to brokers.

Consider having your lease contract reviewed by an experienced attorney.

By Shaina Zucker for the Houston Business Journal

Total contract value for planned construction projects last month picked up in Houston, but continued to drop statewide.

In the Houston-Baytown-Sugar Land metropolitan statistical area, nonresidential contract value in June 2012 dropped 17 percent to $318.96 million from the same time a year ago, data from the research and analytics unit of McGraw-Hill Construction show. Meanwhile, residential rose 28 percent to $552.998 million from June 2011 to the same month in 2012, and the total contract value was up 7 percent.

Statewide, nonresidential contract value dropped 19 percent to $1.37 billion last month, compared to the same time in the previous year. However, residential saw a 25 percent gain as it rose to $11.03 billion.

Year-to-date, total contract value in the Houston area is up 15 percent from the same six-month period last year, while total contract value statewide is down 7 percent.

See full article here.

From EnvironmentalLeader.com

1. New financial tools created by lenders, academics and entrepreneurs to facilitate underwriting the economic benefits of such retrofits will become mainstream, proving the value of retrofits and thus unleashing untapped capital to finance the requisite reconstruction projects. The University of California at Berkeley, the World Bank, Wells Fargo Bank, former President Clinton and New York Mayor Michael Bloomberg’s C40 planning group, Richard Branson’s Carbon War Room, green financier Ygrene, Lockheed Martin, IBM and Barclays Capital are just a few of the multi-national players leading the charge for viable solutions to the existing funding gap.

2. Existing financing structures will become more acceptable, each serving certain segments of the marketplace: (i) traditional debt (loans and bonds), (ii) shared savings with Energy Performance Contracts (EPC), (iii) Tax-Exempt Lease-Purchase Agreements, (iv) Capital Leases, (v) New Market Tax Credits, (vi) Lease or Bond Pools, (vii) On-Bill Financing, (viii) Tax Lien Financing/Property Assessed Clean Energy (PACE) bonds, (ix) Power Purchase Agreements and (x) Energy Efficient Mortgages.

3. Performance contracting will continue to be used as turn-key solutions for sustainable energy retrofit projects and assist in securing existing third-party financing. Under a typical performance contract, an energy service company (ESCO) assumes some portion of the risk over a retrofit project’s useful life by offering a guaranty of energy and operational cost savings and in certain instances bringing a lender to finance the work. Such a guaranty affords third-party lenders a financeable stream of positive cash flow (regardless of the actual performance of the retrofit) and reduces the overall risk of a borrower default.

4. Green leases and green tenant demands are on the rise, causing landlords to support these market demands through increased energy efficiency. The green lease structure, when drafted and negotiated properly, combined with the ability to measure energy consumption on an outlet-by-outlet basis, motivates tenants to reduce consumption of energy, to produce less waste, to reduce water usage, and to utilize environmentally friendly office furnishings and equipment. On the flip side, the landlords are incentivized to provide the capital outlay, on a pass-through basis, necessary for the requisite energy retrofits. Tenants ultimately incur the cost of the retrofits, but they also see the direct benefits in the lower operating expenditures.

5. According to the Rocky Mountain Institute and Johnson Controls, the ESCO industry was sized in 2011 at $4.1 billion and is currently growing at a rate of 26 percent per year. By 2020, Pike Research projects that the market for retrofits in commercial buildings will reach $152 billion worldwide.

6. In order to meet legislative greenhouse gas (carbon reduction) mandates at the federal, state and local levels, large-scale retrofit projects, in which combined technologies are utilized to optimize buildings as a whole system, will have to be utilized on a national basis. The Deep Energy Efficiency Pays (DEEP) program is one example of a proposed utility-based incentive that is applied on top of other existing rebates to push for whole building retrofits through reduced payback timelines for owners and investors.

7. Advancements in building automation technologies and the convergence of information technology and building data are forcing the commercial marketplace towards DEEP retrofits on a global basis. This collection of information and analysis of data in central databases affords building owners and operators the ability to not only track and identify where a building’s energy inefficiencies lie but also allows for the creation of specialized solutions when effectuating each applicable retrofit. Post-retrofit, these technologies monitor, adjust and synchronize a comprehensive infrastructure that reduces energy consumption on a real-time basis and interfaces with smart meters and smart grids.

8. In the United States, various federal agencies responding to President Obama’s commitment (i) to green the executive branch (requiring LEED Gold certification on all federal building projects) and (ii) in his Better Building Initiative (seeking, through tax incentives, to reduce energy consumption in commercial buildings by 20 percent, which equates to savings of over $40 billion per year), are creating and rolling out programs to incentivize building owners to engage in sustainable/energy retrofits.

9. One of the fastest-growing LEED rating systems over the past two years has been LEED for Existing Buildings Operating and Maintenance (LEED-EB: O&M). This quantifiable measurement and certification standard, and others, will continue to assist the marketplace in monetizing the value applied to sustainable/energy retrofits.

10. Performance disclosures, highlighted by new legislation in California that mandates the disclosure of building performance to all new tenants and buyers, will drive building owners to increase overall efficiency metrics of existing commercial buildings through retrofits.

Full article available here.

Capitalization rates for single-tenant net-leased retail properties declined in 2Q12, according to The Boulder Group’s 2Q12 Net Lease Market Report. In contrast, cap rates for office and industrial properties rose slightly, according to the report.

Restrained development and an abundance of available capital for these assets have contributed to continued cap rate compression in the retail sector. Tenants seeking reduced rents are backfilling existing space, such as vacated Borders locations, further hindering the sector’s supply, according to the report. Cap rates are likely to continue moving downward as many national retailers curtail expansion plans.

Available financing and stable cash flows are expected to fuel transaction volume in the overall national single-tenant net-leased market. Institutional and private investors are drawn to the sector’s stability, and core assets with investment-grade tenants will continue to be in high demand, according to the report.

Source: The Boulder Group via CCIM

The following is a summary of an article published on CNBC.com:

• With help from a government loan program for small businesses, small businesses are buying their own office space.
• The amount of small businesses loans under this program rose at an annual rate of 16 percent in the three years after the end of the recession in 2009 to $4.45 billion, according to the Small Business Administration.
• Commercial real estate prices are down 30 percent from the peak nationally.
• Government-backed loans allow business owners to put up a down payment of just 10 percent, compared with the 25 percent to 40 percent demanded in a commercial property loan.
• The qualification for SBA loans generally require that the business have less than $5 million in income and fewer than 500 employees.
• The loans are typically for 20 years — compared with the standard 30 years for most fixed-rate home loans — and come with interest rates that are slightly below market rates.
• Commercial property prices have become very attractive, says Walter Page, a director of research at PPR, a division of CoStar Group, a commercial real estate data company.
• “There is an abnormal amount of opportunity now — if people want to buy, or fix and renovate, now is the time,” Page says.

See full article here.

The July issue of Tierra Grande, the magazine of the Real Estate Center at Texas A&M, features region-by-region coverage of the Texas land markets. See below for the Gulf Coast summary or check out the article for information on your area.