Mariwyn Evans writes about commercial real estate for REALTOR® Magazine. You can reach her at email@example.com.
February 2010: Commercial News Roundup
News briefs to keep you in the know about the commercial real estate industry.
February 1, 2010
Warehouses in the Age of $4 Gas
For more than a decade, the byword for warehouses has been centralization. More and more companies chose to store their goods in gigantic warehouses in a few key markets—Los Angeles, Chicago, Atlanta, Dallas, and parts of New Jersey. The rationale was simple: Having goods in fewer places reduced the overall amount of needed inventory.
But when the hoped-for recovery once again pushes gasoline above $4 a gallon nationwide, those mega-centers may find themselves losing out to smaller, more dispersed warehouse markets, predicts Sam Foster, executive vice president with Jones Lang LaSalle in Los Angeles.
"What happens around $4 a gallon is that diesel fuel begins to cost more than the savings created by reducing inventories in these fewer, larger warehouses," says Foster. When fuel is less expensive, it’s more cost-effective to have fewer warehouses located as much as 300 miles from the end retailer. (The magic 300 miles represents the maximum distance a driver can go out and return in the 11-hour drive time allowed by federal regulation.)
When fuel costs spike, however, the economics shift to cities within 150 miles roundtrip from final markets, says Foster. Overall distribution costs are less when inventories don’t have to be trucked as far to retailers, even if inventory costs increase. That change opens up opportunities for dozens of smaller cities like Indianapolis, Phoenix, Seattle, and Columbus, Ohio, to move up the warehousing ranks.
Unfortunately for current warehouse owners in these smaller markets, new demand won’t often be met by existing product, says Foster. Even in smaller markets, shippers will demand properties with the 32-foot ceilings, multiple loading docks, and wide truck yards that allow for handling efficiencies. These features aren’t found in older buildings.
CCIMREDEX: Listing Syndication and Much, Much More
Whatever you need to do with a commercial property—market it, analyze it, or manage it—you’ll find the necessary tools at the new CCIMREDEX site (www.ccimredex.com), which is scheduled to launch March 31. At first glance, the new real property data exchange created for CCIM Institute members by CCIM Technologies and ESRI might seem like just another marketing portal, letting you send commercial property sale and lease listings to multiple professional sites. But look a little closer, and you’ll find a wealth of mostly third-party tools for both transactional and non-transactional business activities.
"I like to compare the site to an iPhone," says Todd A. Kuhlmann, ccim, director of CCIMREDEX. "You can use an iPhone just for phone calls, but what gives the phone its power is all the third-party applications."
If selling or leasing a current property is your goal, you can enter up to 500 fields of property data and then easily push the info out to a variety of third-party industry listing sites such as eProperty and CommercialSource.
The same data you entered for the listing also can be used to develop a wide array of marketing materials available from third-party vendors directly through the site. You can work with vendors to:
- Create a one-page, template-based brochure and mail it the next day through partner expresscopy.com.
- Access an Excel list from more than 14 million U.S. businesses, and send an HTML document linked to property data.
- Receive a free one-page environmental assessment.
- Use REIWise AnalyzeNow to enter specific property variable and compute cap rates, 10-year cash flow, and LTV.
Initially, the new site will be available only to CCIM members and candidates, but discussions are underway to make it available on a subscription basis to individuals or members of other commercial real estate associations. Prices have yet to be announced. Want to learn more? Attend a webinar at www.ccimredex.com.
How Low Will They Go?
You don’t have to be a market research expert to know that the current lack of capital and the resulting deleveraging in the commercial real estate market is going to have an adverse effect on property values. But just how much will that decline in values amount to? Serguei Chervachidze, capital markets economist with CBRE Econometric Advisors, analyzed the relationship between leverage and commercial real estate prices in the mid-1990s. Using this data, he estimated that for every 100 percentage point drop in total leverage, real estate prices would fall 40 percent from their peak.
Of course, value drops will vary by property type (see chart) as well as by the asset's quality and location. Overall economic conditions will also have an impact. But as debt on commercial real estate drops to what Chervachidze calls "sustainable levels," property owners can expect a few years of very rough going.