Land & Industrial

The commercial real estate industry is gaining momentum both nationally and locally.  Land properties are no exception when it comes to being a target asset class in this fast-moving market.  Land is in demand, period. This past year has demonstrated that there is both a need for land and strong market confidence to move forward with deals.  As the economy continues to recover from the pandemic, there are clear indicators that there is a healthy appetite for multifamily, single-family residential and industrial development opportunities.  This past year saw one of the strongest increases in residential land sales (both multifamily and single-family developments) nationwide, followed by sales for industrial use. 

National trends are also visible in the growing Albuquerque metro areas.  From a residential perspective, the need for housing continues, making land that is suited for residential development a target for home developers and contractors.  Since the pandemic, there has been a lifestyle shift.  People are looking to invest in land outside the city where they have an opportunity to be near open spaces, enjoy privacy and build a home that can comfortably support a hybrid work-live situation.

Where residents go, retail inevitably follows. National retail concepts are tracking these growth patterns and extending their footprints, siting locations to service these growing communities.  At the top of these lists are national quick serve restaurants, convenience stores and gas stations.  In the Albuquerque metro areas, we are seeing continued expansion in the Rio Rancho area, especially in the Unser Gateway corridor, anchored by Presbyterian’s Regional Hospital – Rust Medical Center.  Another notable growth node to the north is the Town of Bernalillo, where new housing continues to be developed and national retail concepts are locking in their sites along the main corridor. 

The northwest and southwest mesa areas of Albuquerque continue to be desirable options for residential development and expanding retail services due to being land locked by mountains to the east, as well as surrounding Pueblo land.  The commuter corridors to these peripheral residential communities are contributing to (and will continue to do so) an uptick in land sales to quick-serve restaurants and convenience store developers.  Housing continues to develop in Albuquerque’s southeast region through the Mesa Del Sol development.  Anchored by Albuquerque Studios, Netflix and more, this area will continue to grow as services come to the area to support residents and movie industry employees.  To the south of Albuquerque, we observe that Los Lunas is experiencing a continued growth spurt with housing to accommodate Facebook expansions and other economic factors positively affecting the growth of the community.   

Along with residential land, the need for industrial land for warehousing, distribution centers, flex spaces and other industrial buildings with storage facilities and contractor yards is higher than ever.  Ideal locations for these large facilities are on the periphery of the city along the I-40 and I-25 corridors.  The change of retail to e-commerce was already trending prior to Covid-19.  What we are seeing today is an acceleration of this need.  Not only is land needed for large-scale warehousing, there is an equal appetite for smaller lots to accommodate small to medium warehouse developments. Low industrial inventory, absorption of warehouse space by the expanding movie industry, and legalization of cannabis manufacturing are some contributors to this demand.  Additionally, space consumption required by out of state contractors for large developments such as the tech/aerospace industry, an Amazon Distribution Center, Facebook’s Data Centers, etc. are also reasons why buyers are turning to appropriately-zoned land for construction. 

Continued barriers for land development in the Albuquerque metro area will be land scarcity due to the natural constraints of the mountains and surrounding Pueblo lands, difficult land assemblage in Rio Rancho for housing, material and construction costs, supply chain issues, municipality (planning and zoning) timelines, etc.  Another important factor to consider is water resources and utilities to supply these expansions.

Opportunities in our area can be found in emerging locations and submarkets of the metro area, businesses expanding into secondary sites, meeting land demand for residential and retail needs, out-of-state investors targeting New Mexico for new locations, I-40/I-25 logistic corridors, infill/redevelopment opportunities, economic development incentives, pro-development jurisdictions and pent-up energy/money coming out of the pandemic.

To read more and to download the full report, click here.

For more information on land development opportunities, industrial/warehouse commercial real estate and other asset classes, contact Genieve Posen.

By Alex Pulliam, NAI SunVista Land and Industrial Advisor

Commercial real estate has many cycles and what once worked may need updating to compete in a contemporary market. Such was the case for Montgomery Plaza, a retail center on one of the busiest intersections in Albuquerque. It was a vibrant retail destination that housed junior box retailers and had an entertainment component. However, as the real estate cycles changed over decades, retailers began contracting their footprints and entertainment establishments relocated to areas with interstate visibility. Recognizing the longtime vacancy of a freestanding 53,300 SF box, the owners of Montgomery Plaza (Goodman Realty Group) looked beyond the box to what the current market was demanding- industrial opportunities.

The owners engaged members of the NAI SunVista Industrial Team (Alex Pulliam, Jim Wible & Keith Meyer) to discuss the property and evaluate it as an industrial opportunity. As location would have it, repositioning the former It’z Pizza, located at 4595 San Mateo NE, into what is now becoming Dion’s Commissary & Headquarters, was the right move for many reasons.

Here’s why this reposition worked:

Market Conditions

Originally marketed for over 5 years as a single purpose retail lease opportunity, this property was brought to the market in July 2020 as a potential lease or sale opportunity. The economy was in the middle of the COVID-19 Pandemic and “ambiguous” was a word often used to describe the state of the market. The industrial vacancy rate was hovering just above 2%, a then historic low. Interest rates saw a slight drop and government incentives were introduced to stimulate the economy. Due to these factors and others, interest came from buyers and multiple purchase offers were received. Industrial became the hottest asset class in the market and this property went under contract less than 3 months after being introduced to the market.

Construction Type

The previous user was an entertainment center with plenty of open space for children’s carnival rides/games which required a large electric capacity, a necessary component for any industrial building. Couple that electric load with concrete tilt-up construction, decent column spacing, easy to add dock wells (this building has a usable slope in the back that allowed for a dock well and ramp access) and 24’ ceiling height- the bones of the building created a functional canvas for industrial reuse. The eventual buyer, a commissary user, also benefited from the existing commercial kitchen infrastructure which boasted built-in walk-in coolers and freezers and versatile plumbing.

Zoning

Previously, 4595 San Mateo was zoned MX-M (Mixed Use Moderate Intensity) which allowed for retail & commercial uses. After evaluating the nearby properties and the large amount of NR-LM (Non-Residential Light Manufacturing) & NR-C (Non-Residential Commercial) properties in the immediate area, a zoning upgrade was relatively easy to justify. A public notice did not receive pushback and a successful NR-C designation was achieved in a couple months.

Yard Space

A requirement for any industrial user is a solid truck court with sufficient trailer parking & truck circulation. With the oversized 5.4-acre industrial lot, we were able to achieve 22% Floor Area Ratio which left plenty of space for trucks and future growth.

Replat

The biggest obstacle in the repositioning process was the replat process. The former It’z Pizza building was part of one contiguous parcel that included the movie theatre to the north. These two properties needed to be separated into individual parcels for the sale of both properties. Since easements, CC&R’s, and utilities of the retail center were tied together and under a single ownership, it became a delicate process to untangle these intricacies and provide agreeable boundary lines. After 9 months of meeting with the local municipalities, the third-party planner was able to achieve a replat.

The Buyer

Dion’s, the selected buyer, is known locally as a favorite community restaurant and is well received by neighborhoods and the public. Together, buyer and seller established a strong working relationship that embraced continuous communication and resulted in a successful transaction for both parties.

Though timing and replat related hurdles were encountered during this transaction, the buyer and seller worked together with their respective teams to achieve one of the most successful repositions in recent times. This project recreated great synergy in Montgomery Plaza which led to the sale of the adjacent movie theater, that will ironically remain a movie theatre. These sales will provide capital for the owners of Montgomery Plaza from otherwise non-performing assets and continue to serve as a catalyst for other projects in the area that will add to the vibrancy of this intersection.

Alex Pulliam is an Advisor in our Land and Industrial Division. For more information on his properties click here.

NAI SunVista is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.

By Riley McKee, NAI SunVista Land and Industrial Advisor

What happens when an unstoppable force meets an immovable object?

This long-debated paradox is nothing more than a mind game, but occasionally, real-world circumstances align that present a similar conundrum.

The industrial real estate market in Albuquerque, New Mexico is a good example.

The seemingly unstoppable force of declining vacancy rates is rapidly approaching a showdown with the heretofore immovable object that is the near total lack of new construction. Pressure between the two has been mounting for years with relief—in the form of higher lease rates or lower construction costs—long awaited.

That wait will continue until a developer comes along who is able to recalibrate the balance between lease rates and construction costs. Successfully doing so will require breaking from entrenched attitudes about the market’s capacity for higher rents and bold action in spite of an unpredictable cost environment.

Lease Rates

The fundamental driver of new construction in a given market is lease rate growth. During periods of economic expansion, the supply of immediately available space decreases which, by the enduring law of supply and demand, applies upward pressure on the cost to rent space. Tenants active in such a market are often willing to pay these higher rates in exchange for the growth potential, access to markets, or efficiency gains a new facility offers.

Unfortunately, this is not the story in Albuquerque’ industrial real estate market, where rent increases have been nominal and far from compelling enough to capture the attention of developers. In a market with less than 2% vacancy, this runs contrary to the demand curve and suggests that landlords may not be charging enough.

Construction Costs

Tepid lease rate growth is not the only factor limiting new development—construction costs have also been a significant hurdle. Historically higher in New Mexico relative to the rest of the country, they have increased further since the pandemic disrupted supply chains across the globe.

Materials costs are expected to be up for some time as the post pandemic economy reorients itself while the supply of labor is constrained by issues on several fronts. Long-term construction projects in the Albuquerque MSA, including the Facebook data center and Amazon fulfillment center, have pulled large concentrations of tradesmen to a few jobsites while supplemental unemployment insurance has slowed what should have been a rapid recovery in the labor market.

With the competing problems that are low lease rates and high construction costs bringing new industrial real estate to the market is a difficult task. Development is risky, involving a host of tradeoffs with outcomes that are never a sure thing.

There is, however, undeniable opportunity—opportunity that can be seized by abandoning the safe approach many landlords have fallen into through not challenging the lease market with higher asking rates. Investment performance metrics like quick absorption and high occupancy seem to be rated higher today than what should be an investor’s primary target: financial return. Increasing—and realizing—lease rates in response to the obvious demand a sub 2% vacancy market presents will open the door to the new construction that is sorely needed, despite the high-cost environment.

At a certain point, the unstoppable force of declining vacancy rates could effectively meet an immovable object: the prospect of no space available. Should that happen, it would be evidence of the worst assumptions about our market—that growth is anemic.

Hopefully well before then an astute developer will initiate a new phase of growth and be richly rewarded as a result.

Albuquerque needs more industrial space—who is going to fill the void?

Riley McKee is a Senior Advisor in our Office Division. For more information on his properties click here. 

NAI SunVista is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.

By Genieve Posen, NAI Maestas & Ward Land and Industrial Advisor

On both a local and national scale there has been an increase in land sales. This past year has demonstrated that investors are rediscovering and regaining confidence in land real estate which resulted in an impressive year for land sales. It is also projected among the industry leaders that land sales will continue to perform strongly over the next year to 18 months.

As it relates to residential development, much of this demand for land was brought on by the effects of COVID-19. People were looking to invest in land outside the city where they have an opportunity to be near open spaces, enjoy privacy and build a home that can comfortably support a live-work situation. This movement of buyers coming from urban or suburban areas spurred on the need for more retail services, thus an uptick in land sales and ground leases of appropriately-zoned land for quick-serve restaurants and convenience stores. The pandemic also accelerated the demand for industrial properties, and with such limited supply in the Albuquerque Metro area, buyers are turning to appropriately-zoned land for construction.

Land development makes for a complex investment—however, if done correctly, the results can yield significant profit. To be clear, land development is defined as the process of buying land for the purpose of developing/building on it or conserving it for long-term appreciation. Mark Twain famously said, “Buy land, they’re not making it anymore.” This quote supports the idea that land is a limited resource, making it an asset that can gain considerable value. Other benefits of developing land is that the purchase price and holding costs are lower than other asset classes, and the appreciation potential can remain high even with less than desirable market conditions.

When it comes to developing raw land, there are several site factors that an investor needs to evaluate prior to purchasing:

– Location
– Access
– Zoning
– Easements
– Availability of dry and wet utilities
– Topography
– Lot configuration
– Price

Although a property may check all the boxes on a site evaluation, the most important factor of raw land investing is understanding its economic feasibility. Does the opportunity “pencil-in” for the developer and provide the desired return? While the figures will be an estimate, understanding the viability of the project, including estimated costs, revenues and overall returns will guide an investor’s success and lessen their risk on the venture.

Anyone interested in investing in land should have a strong understanding of market cycles and real-time market activity to make the strongest strategic moves. Today’s top opportunities in raw land are unlimited and can be driven by creativity and good decision making. Follow that up with the assembly of a strong professional team that understands the land market, government development processes, site design, construction and marketing, and you have the key elements to a successful development.

Contact me today to help you navigate your next land investment move.

In addition to Genieve’s professional insights, she is known for her ability to connect people to the right location. With a background in commercial site planning, master planning and urban development, she brings vision to value for her clients.

For more information on land development opportunities, industrial/warehouse space and other asset classes, contact Genieve Posen.

NAI SunVista is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.