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Land/Industrial – 2024 Q3 Market Review

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The Land and Industrial Q3 market research and data is compiled by NAI SunVista commercial real estate land and industrial specialist, Riley McKee. Riley advises industrial and logistics real estate owners and occupiers on leasing, acquisitions, and dispositions.

After a brief stabilization, vacancy is on the rise again

Research and Analytics provided by Riley McKee, CCIM, SIOR

For a third consecutive quarter, the vacancy rate for industrial real estate in Albuquerque has set a new five-year high. Now at 4.24%, the share of properties in the market available for lease continues to grow but is still below the national vacancy rate which sits somewhere between 5% and 7%.

The total of vacant industrial space is just over 1,700,000 square feet, up about 250,000 square feet from the second quarter of this year. The lion’s share of this increase is tied to a single property located at 245 Woodward Rd. SE which alone added 112,000 square feet of space to the market. This continued a trend mentioned in previous editions of this report wherein larger, bulk distribution and manufacturing properties are disproportionately impacting the vacancy rate.

Download: Q3 2024 Land & Industrial Quarterly Report

LIN Leasing Deals Of The Year

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NAI SunVista is proud to announce the remarkable achievement of winning the esteemed LIN Lease Transaction of the Year award for 2023. This recognition honors the exceptional dedication and excellence demonstrated by our remarkable teams.

The meticulous handling and strategic approach by John Algermissen and Genieve Posen for the 2001-2007 Candelaria Rd. property, combined with Todd Strickland, Rob Bridges, and Riley McKee’s expertise in managing the 6013 Signal Ave NE location, led to securing this distinguished award for both teams.

When asked her thoughts on winning the award for 2001-2007 Candelaria Rd., Genieve Posen had this to say “ NAI SunVista brokers, John Algermissen and Genieve Posen, represented the owners of 2001 & 2007 Candelaria Blvd, located on the eastern frontage road of North Interstate 25. Previously known as Motel 1 and Motel 76, the property underwent a shift from hospitality to long-term stay, facing challenges like vandalism and homelessness. Seeking guidance on bringing their asset to the market for a ground lease, the property owners engaged the NAI SunVista Team.Despite purchase interest from convenience stores and transitional housing facilities, the owners opted for ground lease negotiations with an adjacent property owner. Dealing with complexities such as building demolition, a portion of DOT-owned land, and negotiations with the existing restaurant tenant, both parties successfully achieved their goals through strong negotiations and creative problem-solving. The project’s success lies in a transaction that will aid in transforming a once inactive corner into a development that will enhance the gateway of this prominent industrial trade area.” 

When asked his thoughts on winning this award for the complex handing of 6013 Signal Ave, Rob Bridges has this to say “ Our efforts did play a key role in helping the owner purchase, fix up, and fill up a property with a Tenant that is going to last him a lifetime. He was a first-time investor that with our help and guidance was able to achieve what we consider to be an ideal investment opportunity for locals and other first-timers that are just looking to get their foot in the door.” 

SunVista extends heartfelt gratitude to John Algermissen, Genieve Posen, Todd Strickland, Rob Bridges, and Riley McKee for their tireless efforts and unwavering dedication that contributed to this remarkable achievement.

What HB111 Means for Your Property

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by Sarah Raboff

If you have not been informed, the federal COVID-19 eviction moratorium, which prevents the eviction of tenants who are unable to make rental payments, was extended from March 31st through June.

In the local legislation session that began Tuesday, January 19th, HB 111, the “Housing Discrimination” Bill, which aimed at expanding deadlines for eviction and misconduct, did not pass.  By the time it had worked through committees, all the possible changes to the Uniform Resident Relations Act were removed.  The Apartment Association of NM led the efforts here.

Once the COVID-19 eviction moratorium ends in June, we expect the eviction process to continue as relatively landlord-favored in Albuquerque.

HB 291 was aimed to “Increase the Low-Income Comprehensive Tax Rebate, Increase the Working Families Tax Credit, expand eligibility to residents who were previously ineligible by limiting capital gains deductions, adding new tax brackets, and increasing property taxes on non-owner-occupied properties.” The Bill did pass; however, the investment property tax increase component was removed.

Please do not hesitate to contact Jim Wible or Sarah Raboff  for more information on how your portfolio is performing relative to the market.  We are seeing excellent activity in the multifamily sector.

Sarah Raboff is an NAI SunVista commercial real estate specialist who has a strong interest in multifamily property class, as a firm long-term investment driven by supply-demand fundamentals. Sarah is dedicated to her clients’ success and building lasting relationships with clients and colleagues.

Learn more about Sarah and her listings.   

Where Is Smart HNW Money Going?

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A look into the current investment strategy and appetite of high net worth families…

The folks at Money360 wanted to find out where high-net-worth investors, family offices and hedge fund managers plan to put their capital over the next 12 months.

In March, commercial real estate lender Money360 Inc. polled family offices, hedge fund managers, wealth managers and other attendees at the ALTSLA alternative investments conference. The folks at Money360 wanted to find out where the “smart money” is going.

The survey showed that half of the attendees expected to boost their investment in physical assets like real estate and gold over the following 12 months. The same number of people planned to increase allocations in private debt. Meanwhile, 43 percent of the investors envisioned assuming less investment risk during the 12-month period.

Many high-net-worth (HNW) investors and family offices “feel like it’s time to take some chips off the table and put their money in a safer, more secure investment for the next couple of years,” says Evan Gentry, founder and CEO of Ladera Ranch, Calif.-based Money360.

“We’re on a 10-year bull run on real estate values and the stock market,” Gentry adds. “We all know these things cycle. So, even though the economy is still strong and unemployment is low, there’s a sense among many that the best years of the cycle are behind us.”

Money360 is an originator and servicer of commercial real estate loans. Among the borrowers are HNW individuals and family offices. A subsidiary, M360 Advisors LLC, manages portfolios of senior debt investments secured by first-priority liens on income-producing commercial real estate in the U.S.; investors include HNW individuals and family offices. The M360 Advisors fund comprises more than $500 million in assets.

In a Q&A with NREI, Gentry gives his take on the appetite of HNW investors and family offices for commercial real estate investments, pinpoints which real estate sectors are his current favorites and explains why his firm prefers “selective” retail assets.

 

This Q&A has been edited for length, style and clarity.

NREI: What are you sensing from HNW individuals and family offices regarding their future investments in commercial real estate?

Evan Gentry: We’ve continued to see a very strong appetite to get more exposure to commercial real estate, whether it’s owning properties or investing in the lending side. Most recently, we’ve seen a surge of high-net-worth individuals and family offices wanting to invest on the debt side of the equation because it’s a safer play at this point in the cycle. I think that’s a trend that will continue all the way through to when the cycle really does top out and begins to turn.

I’m a strong advocate of the point that you can make money on every side of the real estate cycle, as long as you’re doing the right thing at the right time. At the bottom of the cycle, you should buy all the properties that you can. But when you get up toward the top of the cycle, where we appear to be today, you’re better to be in a first-lien debt position at low loan-to-value so if the market turns, you have a considerable level of cushion on those loans.

NREI: Your firm works primarily in the office, industrial, multifamily, retail and hospitality sectors. Which of those sectors are you favoring now?

Evan Gentry: We always like multifamily. It’s a very attractive asset class. Class-A multifamily is very highly valued today and may be at its peak in the cycle. A lot of the multifamily we do is class-B multifamily in good markets. Obviously, everybody loves class-A multifamily. But class-A right now is trading at such a high premium that there’s not as much safety as in class-B. Class-B is not trading at the same premium from a cap-rate perspective that class-A is.

We also like office and industrial. Office and industrial make up our biggest bucket of loans. But like many things, these things are geographically specific. We’re not going to do the same type of property in every market in the country. But if we’re looking at the right market, there are some really attractive opportunities.

NREI: Why are you drawn to office and industrial?

Evan Gentry: We’ve just seen good opportunities in industrial and office. We’re opportunistic, so we’re going to move toward the asset class that’s providing the best opportunities for us and that has less risk than hospitality and retail. The changes that are taking place in retail, although they’re hurting some of the retail markets, are actually causing a boom in industrial projects.

NREI: Your company is leaning toward“selective” retail, but not all retail. How do you define “selective” retail?

Evan Gentry: We’re avoiding J.C. Penney-type retail centers. We say no to a lot of the retail that we see, but we’re not saying no to all of it. There are some out there that’ll just say they won’t do any retail because Amazon is putting them all out of business. But there’s a lot of retail, especially experiential retail centers that have anchor restaurants and grocery [components], that makes a lot of sense.

 

John Egan | Jul 03, 2018

Taking Advantage of New Tax Laws Will Require Structuring Your Business the Right Way

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To reap the maximum benefits, it’s important to understand how best to structure your business in light of the new provisions of the law.

Tax reforms introduced as the Tax Cuts and Jobs Act and signed into law last December are generally agreed to be the most comprehensive in more than three decades. They include several major changes affecting real estate investment. In general, these changes are beneficial to real estate professionals and investors. To reap the maximum benefits, however, it’s important to understand how best to structure your business in light of these new provisions of the law.

Enhanced depreciation opportunities

Previously, qualified business property was eligible for an immediate bonus depreciation of 50 percent, which effectively allowed the buyer to deduct 50 percent of the cost for the year the property was placed in service, a 40 percent deduction the next year and a 30 percent deduction the year after that. Under the new law, investors can claim a 100 percent bonus depreciation for qualified properties placed in service after Sept. 27, 2017 and before 2023. So, property owners can now take an immediate deduction rather than spread it over several years.

After 2022, the bonus depreciation will decrease by increments—to 80 percent for properties placed in service in 2023, 60 percent for properties placed in service in 2024, 40 percent those placed in service in 2025 and 20 percent for those placed in service in 2026.

The definition of a qualified property has also loosened. For the first time, the 100 percent deduction applies to both new and used properties, as long as they are not purchased from a related party. Importantly, bonus depreciation is available only for short-lived capital investment property such as machinery and equipment.

 In addition, the Section 179 deduction, which allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year, increased from $510,000 to $1 million and the phase out threshold increased from $2 million to $2.5 million. Qualifying equipment and/or software includes almost all types of business equipment that a company buys and uses in its ordinary course of business. Importantly, the deduction limitation amounts will be indexed for inflation after 2018.

To take full advantage of these enhanced depreciation opportunities in some instances it may be advisable to perform a cost segregation analysis to identify personal property assets that are grouped with real property assets, and separating them for tax purposes.

Retention of interest deductibility

The new law enforces a 30 percent limit on interest deductibility for businesses with average gross receipts greater than $25 million. A real property trade or business–– spelled out as one involved in development, construction, rental, management or leasing and brokerage activities–– has the option to elect out of this limitation. However, doing so does change the depreciation rules for businesses that do. Therefore, before opting out, any business or entity should conduct a careful analysis of the cost/benefit on a case-by-case basis.

Pass-through deduction

While it’s been widely reported that the new law introduced a flat corporate tax rate of 21 percent, this applies only to tax-paying C-corporations (typically large public companies) and not to the majority of U.S. businesses, which are predominantly conducted as pass-through entities such as partnerships; limited liability companies taxed as partnerships; and S corporations, whereby the attributes of income or loss are passed through the owner. This discrepancy potentially creates a tremendous imbalance between large businesses and others.

To level the playing field, owners—including investors regardless of their level of participation—can deduct 20 percent from qualified income earned through pass-through entities. While this might not seem momentous, real estate entities could realize significant benefits through restructuring, particularly on the support side. For example, the 20 percent deduction combined with enhanced depreciation could reduce the income tax rate from 39.6 percent to just under 30 percent.

While this deduction is generally equal to 20 percent of the owner’s allocable share of qualified business income, there are some payroll limitations that should be taken into consideration. Specifically, the deduction cannot exceed 50 percent of the individual’s allocable share of W-2 wages paid by the business, or 25 percent of the individual’s allocable share of W-2 wages paid by the business plus 2.5 percent of the individual’s share of the unadjusted basis (i.e. the original purchase price) of property used in the production of income. These limitations underscore the importance of proper tax planning in order to take full advantage of the pass-through deduction.

Significantly, this 20 percent deduction does not apply to “personal service businesses” unless the individual earns less than $157,500 (single) or $315,000 (married filing jointly). Personal service businesses include businesses in the fields of accounting, health, law, consulting, financial services, brokerage services or any other business in which the principal asset of the business is the reputation or skill of one or more of its employees. Two notable exceptions are architectural and engineering services.

Residential real estate

The deduction for single-family or multifamily properties is now limited to $10,000 for the combination of both property and income (or sales) taxes. In other words, taxpayers who pay both property and income (or sales) tax will be able to deduct up to $10,000 total per return. This deduction will impact individuals who itemize their deductions on Schedule A of their 1040 and will be particularly detrimental to those individuals who live in high real estate tax states and in high income tax states such as New York, Connecticut or New Jersey.

Conclusion

For the most part, the new law applies solely to properties within the U.S., however investors do need to be mindful that the rules governing foreign investment are also in flux. In many respects the Tax Act is still a work in progress. Clarifications and refinements are inevitable, and will require ongoing monitoring and analysis.

At the same time, real estate remains a very strong investment vehicle, and one that can be sheltered for the first several years. Creative restructuring that takes advantage of the new law can be an added bonus in helping improve an investor’s tax situation dramatically.

Steven F. Klein | Mar 27, 2018 | Steven F. Klein is a partner at Gerson Preston Klein Lips Eisenberg Gelber, a Miami-based accounting firm.

Why Amazon May Be Picking Up More Retail Locations

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Amazon needs to increase its retail footprint to stay competitive in the race for quickest, cheapest delivery.

Time to delivery is now the yardstick for e-commerce success, so “last mile” distribution space is of utmost importance to online retailers. With last-mile warehouse space in short supply and most of it in old, obsolete industrial buildings, it was only a matter of time before big-box stores began doubling as distribution space.

Online giant Amazon has already partnered with department store chain Kohl’s to handle its returns. Kohl’s is now selling Amazon devices in its stores and offers free returns for Amazon products at a number of locations. “This is a win-win for Kohl’s and Amazon,” says Gregory Healy, senior vice president of supply chain and logistics consulting with real estate services firm Colliers International. He points out that this back-store operation is taking up extra space in stores Kohl’s has downsized and adding foot traffic, while saving Amazon a bundle on shipping, labor and distribution space for returns.

Even more recently, Kohl’s struck a similar deal with 365 by Whole Foods, the grocer’s neighborhood-sized concept, which could expand Amazon’s brick-and-mortar reach to tens of millions of new consumers nationwide—a move that will likely prove a negative for supermarket chains like Kroger.

According to Bloomberg, Amazon also plans to expand Whole Foods into a larger store footprint and utilize back-store space for “last mile” e-commerce distribution operations. News reports also indicate that Amazon is targeting big boxes exited by bankrupt retailer Toys R Us.

“Amazon is actually playing catch-up with Walmart, which has about 4,700 store locations that reach 95 percent of the U.S. population within five miles,” says Pete Quinn, Colliers’ national director of industrial services, U.S.A. He notes that Amazon needs to increase its retail footprint to stay competitive in the race for quickest, cheapest delivery.

The recent plays are all about expanding Amazon’s last mile footprint, Quinn says.

The new buzz words for e-commerce success are: “closer, faster and efficient,” says Healy, pointing out the biggest challenge faced by e-commerce retailers in remaining competitive is lowering delivery costs, which are eating up profits. Consumers now want purchases delivered immediately for next to nothing, he notes.

So in addition to a larger last mile footprint, e-commerce retailers also must get very creative in order to fulfill these low cost expectations. They are doing so by optimizing transportation costs and eliminating the middlemen: UPS, FedEx, USPS.

Some low-cost products are now sold on Amazon as “add-on only,” requiring a total $25 purchase for free Prime shipping. Amazon is also offering customers gift cards for Amazon services if they are willing to allow extra time for delivery.

The e-commerce giant has also launched Amazon Now, which is establishing small, neighborhood storefronts with lockers near college campuses, to offer two-minute pickup service for certain household products, including soap, toothpaste and coffee. Healy foresees Amazon lockers going into all types of neighborhood retail, including grocery stores and pharmacies like Walgreens and CVS.

He suggests that this is the beginning of a trend toward getting consumers to pick up their purchases rather than delivering them, which has ramifications for commercial real estate. He predicts that retail boxes used for e-commerce will require pick-up stalls similar to drive-through banks and fast-food restaurants. According to the Bloomberg report, shopping center REIT Regency Centers, which owns a significant number of Whole Foods stores, confirmed that it is reconfiguring parking lots to provide drive-through stalls for Amazon Flex and other delivery partners.

 

Patricia Kirk | Mar 30, 2018

Auto Parts Sector Stays Resilient To Online Competition

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Auto Parts Sector Stays Resilient To Online Competition.

CHICAGO—Competition from e-commerce has decimated portions of the retail market, and landlords now make it a point to sign leases with service-oriented businesses that can resist internet competition. Many net lease investors also increasingly prefer properties occupied by such ventures. One retail category that now looks especially promising is auto parts retail.

It’s a $58 billion industry which has experienced steady growth over the past few years, usually in the single digits, according to a new study by Quantum Real Estate Advisors, a Chicago-based firm that specializes in investment sales brokerage. Online retail sales within the industry have become more important, totaling $8.89 billion in 2017, a 16% increase over 2016. But AutoZone, Advance Auto Parts and O’Reilly Auto Parts have strong leads in market share, and the high levels of competition make it difficult for new operators to succeed. And this type of property has an additional advantage.

“The value of a property as real estate has become much more important, and from a physical standpoint, there is a lot of residual value in auto retail,” Chad M. Firsel, president of Quantum, tells GlobeSt.com. That’s because unlike, say, McDonald’s outlets, which typically have very specific layouts, auto stores are simpler. Most are one-story rectangles with great visibility, a lot of parking spaces, big open windows in front and high ceilings. That makes these buildings very appealing to a wide array of users, and in an age when Amazon has taken market share from many retailers, investors want that security in case one of their tenants is forced to shut down.

The low cost of auto retail stores also reduces investors’ risk, Firsel adds. A typical outlet, depending on local market conditions and lease details, can sell for about $240 per square foot, a fraction of properties such as pharmacies or popular restaurant chains.

Still, “the big three are performing well,” Firsel says, and investors can have confidence in these companies’ prospects. AutoZone, for example, operates 6,023 stores across 49 states, and saw its revenue grow to more than $11 billion in 2017, a 2.7% increase. In 2017, the company opened 168 stores in the US and has already added another 15 stores in 2018. Cap rates for AutoZone increased 23 bps in 2017 to 5.79%.

Advance Auto Parts operates 5,230 stores and had $9.4 billion in total 2017 revenue, a decline of 1.07%. But cap rates for these stores decreased two bps to 6.64%. The company also opened 47 new stores in the first three quarters of 2017. And O’Reilly operates 5,019 stores and had total revenues of almost $8.6 billion, or 7.9% total revenue growth. Like its two competitors, its cap rates have remained mostly steady, increasing just seven bps in 2017 to 5.93%.

Most importantly for investors, online sellers will find it difficult to further penetrate this market, Firsel says. Amazon has made some headway, but much of their business comes from people buying common products like washer fluid. He categorizes other online buyers as “weekend fixer-uppers,” or car hobbyists who putter around on vehicles they don’t use often.

But the big three have taken these losses in stride and continue to grow. The truth is, most auto parts shoppers highly value the experience of actually going to a store. “They want to go in, see the product, touch it, look it over, and speak to someone about it.” And speed also plays a role. “If something breaks on your car, you don’t want to wait three days to get it delivered.”

MARCH 1, 2018 | BY BRIAN J. ROGAL | Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.

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