As featured in The Portland Business Journal, Texas-based Nation Tours, specializing in Segway city tours, has finally arrived to Portland, having leased 606 sf at the Governor Building. NAI Norris, Beggs & Simpson Real Estate Broker Geri Varvel represented the lessee, Oregon Nation Tours, Inc.
Having been successful in Texas, Nation Tours eyed Portland’s ever-growing tourism industry. According to Travel Portland, the Portland-metro area welcomed 8.1 million visitors in 2012 generating $4.1 billion in direct spending. And that market continues to grow with Portland’s popularity as one of the nation’s top destinations.
“Segway tours fit the city’s personality,” Geri Varvel said. “It’s a great opportunity and the Governor Building was the perfect spot for Oregon Nation Tours’ debut in Portland. Both Portland natives and tourists will truly enjoy these unique and fun tours along the Willamette River and throughout Downtown.”
Oregon Nation Tours will open in March 2014, offering 5 Portland Segway tours daily and bike tours on weekends.
There is a lot of change happening in Portland. It’s obvious that Portland’s economic forecast has trended from typical, expected “gray skies” to “sunny with a few showers”. We’re by no means basking in the glow of a booming economy, but our progress as a city shows. According to the Value of Jobs Coalition, Portland has regained 65,900 jobs of the 72,400 jobs lost between August 2008 and August 2009, and Portland ranks first among three peer metros (Sacramento, St. Louis, and Cincinnati) in terms of employment gained and median household income growth. These aren’t just feel-good facts, but substantial indicators of steady recovery. And this progress has significant impact within the commercial real estate office market, especially when Norris, Beggs & Simpson’s third quarter office market report show Portland to have an overall office vacancy rate of 12.5 percent, the lowest level since the peak of activity in 2008.
Are we trending toward a landlord’s market?
Due to the low office vacancy and job recovery, we are starting to see a transition from a tenant to landlord’s market. Before the Great Recession, there was the Field of Dreams attitude that, ‘if we build it, they will come.” The Sunset Corridor is a testament to this type of uninhibited assurance in the market and was overbuilt because of it. But due to 2008’s economic dropout, the market now restrains from such flagrant displays of confidence. The market’s natural and expected caution is also true of Portland’s current transition toward a landlord’s market because we’re not seeing the traditional shift indicator of rental rate growth. In fact, despite changeable economic climates, Portland’s rates generally don’t fluctuate over time, and consequently cannot be used as reliable market shift indicators.
Rental rates just don’t fluctuate in PDX
Unlike other burgeoning metropolitans like Seattle or Sacramento, Portland’s office rental rates remain consistent and invariable. I recently came across an Umpqua bank flier dating from the mid-1990s advertising the same rental rates as today at $26/psf, full service gross. Furthermore, I even have a client from Beaverton who vacated the Griffith building in 2005, only to reoccupy the same building in 2013 at approximately the same rate. During the 8 years of my client’s vacancy, there was only a quarter difference between the 2005 rate of $16.25/psf, full service gross compared to the 2013 rate of $16.50/psf, full service gross. Whereas other markets may show a spike in rental rates during a landlord’s market, Portland’s rental rates cannot be trusted to show the market’s gradual transition.
Evidence of Portland’s trend toward a landlord’s market is therefore not an increase in rental rates, but rather an apparent decrease in tenant concessions. Though there are still offers of free rent, there are simultaneous decreases in moving and tenant improvement allowances. At the bottom of the market, landlords were offering $.50-$1.00/psf in moving allowances, which is seldom seen today. Such a tightened market only drives the submarket inventory’s competition, which is unmistakably happening to the Sunset Corridor, and for the first time in several years we are seeing multiple offers on the same space.
Sunset Corridor leads revival
The Sunset Corridor epitomized the Field of Dreams attitude in anticipation for a booming high-tech market, but like so many other projects pre-Great Recession, was left to the wayside in its aftermath. During this time, the Sunset Corridor’s overall vacancy peaked at 26.9 percent in 2011, and then steadily trended lower. But it wasn’t until 2013 that the Sunset Corridor’s vacancy rate experienced a noticeable drop between 18.7 percent in the fourth quarter of 2012 and 12.8 percent in the first quarter of 2013. This difference kicked off the Sunset Corridor’s revival, with vacancy continuing to drop to 10.75 percent at the close of the third quarter of 2013.
The sharp contrast between 2011 and 2013 speaks to the evident market shift and the rise in demand for spaces like the Sunset Corridor. The biggest reason is the demand for greater pockets of space, and the Sunset Corridor offers just that with large contiguous floors. Such big spaces are otherwise difficult to come by or pose creative challenges when there is little to no new construction developments.
Rental rates tend to go up when there is no construction to compete with and supply is constant, but as of now, the Sunset Corridor is meeting the high demand with fierce competition. The market is still too raw for any new construction, so buildings that can accommodate this need are being sucked up. For example, I recently had a client looking for 25-30,000 sf in the Sunset Corridor, and we only had three to four options to consider.
Although tenants may not necessarily welcome the shift in the market, Portland’s move away from a tenant’s market is indicative of an overall improving economy. The Sunset Corridor’s spike in activity is proof to this trend, and with unemployment rates dropping to a five-year low, Portland’s office market stands to gain momentum as a landlord’s market in 2014.
Robert Greenfield specializes in the leasing and sales of office properties throughout the Portland metropolitan area.at NAI Norris, Beggs & Simpson, a real estate brokerage and asset/property management company. Contact him at 503-273 0323 or email@example.com.
Congratulations to NAI Norris, Beggs & Simpson for earning the top rank as deemed by Oregon Business’s 2014 Powerbook issue!
NBS Financial Services Senior Vice President Wally Harding and Senior Associate Finance Officer Mick Stapleton have arranged $8,234,000 in refinancing for The Retreat at Union Square, a 126 unit luxury residential property in Boise, Idaho. Financing was placed through the Fannie Mac DUS program for long-time Boise developer, Union Retreat, LLC.
The refinance paid off the construction lender to provide long-term financing with a favorable interest rate. Harding and Stapleton secured the refinance of the construction loan with interest-only for the first 5 years over a 10-year term and a 30-year amortization.
The Retreat at Union Square is a new, exceptionally built Class A residential property offering spacious 1-3 bedroom homes equipped with a community center, pool and spa. The complex is conveniently located in Southwest Boise with quick accessibility to downtown, job centers and shopping.
More than 3,200 CEOs and top-level managers in Oregon and Southwest Washington were surveyed to determine the Most Admired Companies. It is an incredible achievement that NBS placed in the top ten again this year. This would not be possible without all of your hard work and outstanding contributions to this company. Be sure to pat yourself on the back for being instrumental in this success.
Many of NAI Norris, Beggs & Simpson’s property managers are active members of the Institute of Real Estate Management (IREM), and were recognized during IREM’s Annual Awards Ceremony. Traci McCauley received the 2013 CPM of the Year, Stephanie MacPherson received the 2013 CPM Candidate of the Year, and NAI Norris, Beggs & Simpson was named the 2013 AMO Firm of the Year.
A number of our property managers will hold leadership positions in IREM during 2014:
- Stephanie MacPherson – Vice President of Finance
- Traci McCauley- Vice President of Member Services
- Monique Clouser- Community Service Committee Chair
- Nutan Engels- Income & Expense Committee Chair
Norris, Beggs & Simpson Companies is proud to announce the addition of Katie Brotherton to the Advertising and Communications Department as Public Relations and Marketing Specialist, J. Clayton Hering announced.
Brotherton will be responsible for handling press relations and communications for NBS.
Originally from Ohio, Brotherton graduated with a master of arts in English literature from Xavier University as well as a bachelor of arts in creative writing from Miami University. Brotherton’s passion for language was the impetus to move to Portland and flex her professional writing capabilities. Though her background is primarily academic, Brotherton believes her specialty provides an edge especially within the evolving state of public relations.
“Similar to the commercial real estate properties Norris, Beggs & Simpson represents, language is transformative and creates community. My interest is mastering impactful representation of the company while collaborating with the media and to create lasting influence,” Brotherton said.
Brotherton is thrilled to be welcomed as part of the exceptional Advertising and Communications team at Norris, Beggs & Simpson. She aspires to contribute to the company’s legacy and culture in a creative and positive way.
State Farm Life Insurance, located in Bloomington, Illinois, is the lender. The transaction proved to be challenging in regards to the fact that it was a single non-investment grade tenant requiring a high loan per square foot at approximately $185. This is a sharp contrast to the typical $100-150 valuation for industrial product, Wood said. In addition to these challenges, FedEx Corporation didn’t guarantee the lease as the tenant is only a subsidiary.
Despite these challenges, Wood was able to structure the loan with a 20-year term and 20-year amortization and the borrower locked in a sub 4 percent interest rate.
“The borrower requested a long-term fully amortizing loan in order to lock-in a low interest rate and avoid refinancing,” Wood said. “If the buyer sought the same deal in the current market, the rate today would be an estimated 100 basis points higher.”
Norris, Beggs & Simpson Financial Services President Ken Griggs and Finance Officer Paddy Ryan have arranged a $35 million refinance loan for Von Karman Plaza, a 241,539 sf retail property in Irvine, California.
Harsch Investment Corp. is the underlying borrower of Von Karman, LLC and ING Investment Management, out of Atlanta, is the lender.
Prior to the refinancing, the Von Karman Plaza was in the midst of repositioning itself due to several retailers vacating large blocks of space, including Sam’s Club. After major renovations and reintroduction of the property to the market, the borrower was able to bring in new anchor tenants like Wal-Mart, filling up a majority of the property’s vacancy. At the time of funding, a block of unoccupied space remained, but ING had confidence in filling the outstanding occupancy and was able to structure a solution. The owner seized the opportunity to refinance, which then would help fund the final renovations.
“Even though there was a considerable vacancy, ING Investment Management was attracted to the borrower’s efforts to reposition the property and its leasing efforts to date,” Griggs said. “ING was confident that the borrower would fill the remaining vacancy.”
Griggs and Ryan were able to structure a favorable refinance locking in a low interest rate for a 10-year term and 30-year amortization with an attractive level of proceeds to meet the borrower’s needs.
I spent Halloween visiting my daughter and son-in-law at the home they recently purchased in close-in Northwest Portland. Walking around their neighborhood, I was amazed at how many young families with children lived in the area. On one block alone, there were four sets of couples who worked at Intel. Young families like my daughter’s and her neighbors would previously have flocked to the suburbs, but today they are much more likely to choose an urban lifestyle in an area like Northwest or the close-in Eastside.
This demographic shift to close-in living is no longer just a trend, but is the new normal. People of all ages are just not as interested in the suburban lifestyle, and are willing to sacrifice financially to live an urban lifestyle. They are forgoing features like more square footage, yards, garages and well-funded schools, which are readily available in the suburbs, to live near amenities like restaurants and arts and entertainment options.
They’re paying for the convenience and amenities of urban living. For instance, RMLS’ September reports on the single-family market showed a median sale price of $292,500 in NE Portland, while the median price of a home in Beaverton and Aloha was $251,500, and $238,100 in Hillsboro and Forest Grove. A recent study by the chief economist at real estate website Trulia also examined the urban population shift. In Portland, urban home prices have grown 15.7 percent year-over-year, while suburban prices are up just 12.4 percent in the same time period.
Renters are also paying a premium for urban spaces, as NAI Norris, Beggs & Simpson’s Third Quarter reports show. Some renters in prime locations are paying nearly twice the amount per square foot for a close-in location as compared to the suburbs. Overall price per square foot for an apartment downtown (which includes the Pearl/Northwest) is $1.80, compared to 95 cents in Beaverton/Aloha. When price per square foot is so high, the trend toward micro-units makes perfect sense.
No matter whether people live in urban or suburban areas, retailers continue to adapt to the new reality of online shopping. Black Friday is generally the don’t-miss shopping day, and is top of mind for retailers at this time of year. This year, however, Adobe expects online shoppers to spend $1.6 million on Black Friday, up 17 percent from 2012, and many online shoppers will not even wait until Black Friday – they’ll start on Thanksgiving.
Amazon paved the way in online shopping, and legions of retailers continue to try to remain competitive with its free shipping. Walmart, for instance, recently announced its foray into same-day delivery from its superstores. Retailers, particularly large-format ones like Walmart, continue to shrink their brick and mortar stores and move more of their sales online.
Retail investors are closely attuned to the new realities of both urban living and online shopping, and these play a major role in their investment preferences and risk analysis. The two retail asset classes that institutional investors are most bullish about today are malls and lifestyle centers. Even as consumers prefer to do some shopping online, malls and lifestyle centers have their niche, as there will always be items that people want to see and feel before buying. Shopping destinations like Bridgeport Village and Clackamas Town Center will continue to draw a critical mass of shoppers.
And even when a traditional retailer at a mall or lifestyle center downsizes, as we’ve been seeing frequently in the past five years, another specialty store will be there to take the additional space. The combination of more traditional department and smaller-format stores, and more boutique-like, specialty stores, creates a synergy that draws shoppers, and the risk for investors is less because of this multi-tenant mix.
In addition to malls and lifestyle centers, investors also understand Portlanders’ preference to shop near their homes, and to spend dollars locally. That’s why they remain interested in convenience shopping, neighborhood centers, urban retail, strip centers and single tenant credit NNN.
Portland’s retail vacancy remains healthy, continuing its downward trend to 6.15 percent during Third Quarter. Strip center and urban retail cap rates are holding steady despite a temporary increase in mortgage rates. Investors are moving to well-located convenience centers in secondary markets like Portland, as the risk profile of multi-tenant properties is so much less.
Portland is uniquely qualified to benefit from the demographic shift and increasing retail investor interest. Its excellent transportation infrastructure is a major asset, and the preference by residents to shop local is helping to strengthen resurgent neighborhoods. 2013 saw increased retail sales volume and price per square foot, and this trend is driven by a surge of private investors and 1031 buyers. 2014 will be even stronger yet.
Vice President Denis O’Neill specializes in retail, investment and special asset sales at NAI Norris, Beggs & Simpson, a real estate brokerage and asset/property management company. Contact him at 503-223-7181 or firstname.lastname@example.org.