Archive for October, 2016
Please enjoy an excerpt from the Fall issue of The Linneman Letter by Dr. Peter Linneman, PhD, Chief Economist for NAI Global and Principal of Linneman Associates. Mr. Linneman will also be the featured speaker of the upcoming 2017 NAI Florida Forum.
“How “at risk” are different property investments to an economic downturn? To address this question, we examined a variety of simplified investment profiles. Specifically, we simulated the returns for an 8-year hold period for 3 hypothetical multifamily investments: a class A property with a low yield and high NOI growth in a Gateway market (“Gateway A”); a class A property with a mid-range yield and medium NOI growth in a secondary market (“Secondary A”); and a class B property with a high yield, but low NOI growth, in a tertiary market (“Tertiary B”). We chose to model multifamily because of the simplicity of mark-to-market rents, though our insights can be generally applied to other property types. Each investment is analyzed for a Base Case with constant (but different for each property) NOI growth. For all investments, we assume a purchase price of $100 million, cash flow margins of 83% of NOI (reflecting on-going capex), and exit transaction fees of 3%.
The Gateway market A investment has a going-in cap rate of 4%, NOI growth of 4% per annum for 8 years, and an exit cap rate of 4.5%. The Secondary market A investment has a going-in cap rate of 6%, NOI growth of 2.5% per annum, and an exit cap rate of 6.5%. The Tertiary market B investment has a going-in cap rate of 7.5%, NOI growth of just 1.5% per annum, and an exit cap rate of 8%. For each property, we overlay 3 leverage scenarios: no leverage, 50% LTV, and 75% LTV. This yields a total of 9 “Base Case” scenarios. In both the 50% and 75% LTV scenarios, we assume 10-year debt with a 3.5% interest rate and 30-year amortization.
We also simulated how returns and (interest and debt) coverage ratios are affected by reduced NOI growth due to a cyclical downturn. We refer to these 9 scenarios as the “Realistic” scenarios, as NOI never grows smoothly upward forever. These scenarios assume -6% NOI growth in years 3 and 4 (that is, an aggregate 11.6% NOI decline spread over 2019 and 2020) of the investment horizon. Thereafter, the originally modeled growth rates resume through year 8. In total, we simulated 18 investment scenarios and their corresponding return profiles: 3 different investments, with 3 leverage ratios and 2 economic environments.
While highly simplified, this analysis is fairly realistic and provides insights on the impacts of leverage, property type, and the economy. As to leverage, as long as original pro-forma growth occurs, increased leverage increases both the equity IRR and the equity multiple. For example, the Gateway A property generates an equity IRR of 5.2% with no leverage, 6.3% with 50% leverage, and 8.5% with 75% leverage, while the equity multiple increases from 1.4x to 1.6x to 2.0x over the 8 year hold.”
CLICK HERE to read the full excerpt.
We were honored to host the BDB’s Commercial Real Estate Professionals Round Table on Tuesday, October 11th at Flagler Waterview in West Palm Beach. Flagler Waterview is located at 1515 N Flagler Drive and presents tenants a one-of-a-kind opportunity to enjoy Class-A office space with stunning Intracoastal views, complimentary valet parking, a free tenant parking garage, 24/7 security and an on-site Walgreens pharmacy.
The topic was “Trends in the Market Place” and featured panelists Rex Kirby (Verdex Construction), Tammy O’Rourke (Glidden Spina), and Ignacio Reyes (Leo A Daly Architects). Cheri Pavlik (Leo A Daly Architects) served as the panel moderator. Overall, the panelists agreed that new office space is trending towards more common areas like communal kitchens and employee lounges, enabling the SF per person to reduce as more employees work in these collaborative and common spaces vs. traditional individual offices. Another noted item was the increase in demand to repurpose industrial warehouses in urban areas for professional office and retail users. Ignacio Reyes noted that the increase in technological capabilities will shift how employers and employees work, especially with the boost in telecommuting and public transportation like Uber, which could eventually affect space needed for parking as fewer workers will be using their personal vehicles.
We look forward to seeing how these innovative and modern trends influence new workspaces locally and across the world.
CLICK HERE for more information about the BDB.
CLICK HERE for more information on leasing space at Flagler Waterview.
PRESS RELEASE: Palm Beach Garden’s Newest 63,500 SF Office Technology Complex, Gardens Innovation Center, Breaks Ground
West Palm Beach, Fla. – NAI/Merin Hunter Codman, Inc., Palm Beach County’s leading commercial real estate services firm, is proud to announce their latest assignment, Gardens Innovation Center. This Palm Beach Garden’s 63,500 square foot office and technology complex features ‘green’ eco-friendly construction with innovative and modern architecture situated within the convenient and prestigious PGA National Commerce Park, located on Hiatt Drive and Northlake Boulevard. The developer, LRP Properties II, LLC retained NAI/Merin Hunter Codman to lease the center and KAST Construction to build the project. Groundbreaking commenced in July 2016.
Gardens Innovation Center’s two professional office buildings are poised to attract the finest professional office users, as well as leading technological, bioscience and life science firms. Innovative, resourceful, and cost effective energy-efficient details were at the forefront of the design process. Eco-friendly architectural, construction and aesthetic features will be found throughout the center, as both buildings will apply for LEEDs certification. The center offers users large flexible floor plates in both the two-story, 37,500 square foot building and the 26,000 square foot, one-story building. If convenience is at the top of your wish list, Gardens Innovation Center can be found nestled within PGA Commerce Park, minutes from the Florida Turnpike, I-95 and the area’s finest amenities, including PGA National Resort. Meticulous site selection and workspace planning contribute to the success of employees and businesses. Gardens Innovation Center is designed to lead, collaborate and inspire tenants.
CLICK HERE FOR THE FULL PRESS RELEASE!
Construction is underway at Palm Beach Gardens newest contemporary office/tech park: Gardens Innovation Center! Tenants will enjoy the crisp, clean lines and modern flair of contemporary and eco-friendly architecture located in a refined and desirable Palm Beach Gardens location.
The property will feature: two new contemporary office buildings, innovative and modern design with high ceilings and first class finishes, and a wide variety of efficient floor plans.
Gardens Innovation Center is located at the signalized intersection of Hiatt Drive and Northlake Boulevard, in the prestigious PGA National Commerce Park. The property offers easy access to the Florida Turnpike and is minutes away from I-95, PGA National Resort & Spa and the Gardens Mall.
CLICK HERE for more information.