CCIM|IREM Economic Forecast 2018 – Summary of Insights

CCIM|IREM Economic Forecast 2018 – Summary of Insights

This annual event is a great way to get insight into the local commercial real estate market.  Each year for over the past 10 years the Central AZ CCIM Chapter and local IREM Chapter are able to get the local experts from each commercial real estate product type to discuss what happened the previous year, any trends they are seeing and what they anticipate will happen for the current year and beyond.  All that occurs after a keynote speaker that generally discusses the macro-economic climate.

For this year, we had Dr. Barry Asmus as our keynote speaker.  I had the wonderful privilege to introduce Barry.  I have been blessed to hear him on several different occasions and each time his ability to take macro events down to a practical application never disappoint.  Here are a couple of highlights from his presentation:

-US Economy in 2017 ran at 90% of debt + taxes of GDP (historically this would be 30-50%).  Comparatively speaking, Japan is running 250% of GDP!

-It takes approximately 6 billion hours each year to file tax returns in the US

-There was 5 decades (30s, 40s, 50s, 60s, and 70s) where the marginal tax rate was +/- 70% which produced very low economic growth

-Ronald Regan changed the marginal tax rate in 1982 and lowered it from 70% to 50% to 28%
-1980 – 2000 S&P averaged 12.5% return
-1980 -2000 DJI averaged a 12.4% return

-The new Tax Law change that just passed is going to be unbelievably exciting for everyone

-It is estimated there is going to be somewhere around $2-6 trillion of cash repatriated back to the US economy because of the lower corporate tax rate.

Turning to the current national debt; Barry said we won the lottery to the tune of almost $50 trillion!  How, by the US economy turning into a net energy exporter of natural gas!  The US is poised to produce 10M barrels/day which will may the US the number 1 producer in the world.  Perspective – There is 3.5 million square miles in the US; the federal government owns approximately 1.5 million square miles.  The estimated value of the natural gas is roughly $50 trillion today.

Barry ended with the statement of the free market + fossil fuels + freedom will allow the US economy to continue to lead the way and the world.

 

Industrial Panel Discussion
Moderator: Pete Bolton
Panelists: Pat Feeney, David Krumwiede, Will Strong, and Leroy Breinholt

Overall tone was positive.  There is lots of momentum locally and we are starting to see speculative construction.  Some key takeways are that new spec construction for e-commerce tenants are now looking for minimum of 40’ clear heights.

The owner/user market (6-30K SF user) is very active right now.  The inventory is low and pricings are starting to rise.

Currently, the Phoenix Metro is has about a 6% vacancy.  Cap rates have been ranging in the mid 5’s for single-tenant, investment grade properties.  Multi-tenant has been in the low 7’s to high 6’s for cap rate.  Price points are between $70-80/SF whereas replacement is running $120/SF – further showing the room for growth in pricing.

Manufacturing has been increasing as well.  MFG relies on rail served properties.  In 2016 there were approximately 6 deals; 2017 5 deals and so far in 2018 there are already 3 in the works.

Biggest hurdles are the trades.  It was stated the average age for a senior journeyman mason is 51.  The lack of the trades being available for construction and tenant improvements is going to really drive pricing up significantly over the next several years.

Office Panel Discussion
Moderator: Scott Fey, CCIM
Panelists: Molly Ryan Carson, Barry Gabel Marina Hammersmith, and Mark Seale

We have seen rental rates increase approximately 3.5% year over year as a whole.  Cap rates for Class A CBO in 2017 ranged from 5.8-6.2%; suburban is from 6-6.75%.

From development standpoint, it was a good year.  “Intelligent building” has been the statement used and referenced as a point that there hasn’t been a lot of speculative development.  It has been over 8 years since an office has been built fully spec.

“Creative office is a fad; but is really not.  It is here to stay.” – Barry Gabel in discussions about the how it was thought the creative office wouldn’t be a long term strategy.

Traditional office tenants are focused on meeting spaces, tenant lounges, collaborative spaces.

Healthcare is still using the Hub & Spoke model for space and patient delivery of services.  It helps to on reducing cost as more and more physicians continue to get squeezed on the reimbursements.  Institutional investors like HTA and Ventas are still active and acquiring more properties.  Healthcare follows rooftops (just like Retail!).

CA is always a great opportunity for AZ.  They are seeing more and more of the operations moving to Phoenix and that trend should continue.

There are now 758 tech related companies in Phoenix and that number is continually growing.

“Sustainers” are the infrastructure and the livability drivers for office demand.

Right now, ASU needs at least 500K SF in downtown Phoenix.  ASU is going to move the International School to downtown Phoenix.  The first grocery store is going to be opening soon.  This will be the last piece of the puzzle to have downtown Phoenix truly become a 24/7 downtown.

 

Retail Panel Discussion
Moderator: Pat McGinley
Panelists: Walt Brown, Jr., Michael Hackett, and Rommie Mojahed

The fear of the retail-apocalypse is….over-hyped.  That is the sentiment of the panel.  Even though 8.5% of all retail sales were internet based, there is still demand for the bicks-n-sticks.  Some of the biggest challenges is the adjusting for densities for new projects.  Local municipalities need to understand that Phoenix has some of the most sophisticated retail developers in the nation and understand what works together better than the local municipalities.

Most of the shop space today is being filled with the “internet proof” type of tenant, such as dentists, chiropractors, nail salons, etc.  It has really turned to “daily needs” that are truly successful.  Mixing multiple uses and developments is the what is demanded and being built.

A lot of centers are either “have or have not” centers.  Plus there is a big disconnect between perception and reality.

Operationally, the co-tenancy clauses in leases are more and more necessary to understand given the box disruption that continues to occur.

Cap rates for core grocery anchored centers are between 5-6%; power centers are between 7.5-10%.  If it is a B/C center, they are seeing more 8%+ cap rates.

2017 had 4,000 net store openings overall.  Occupancies are up, rental rates are increasing and all signs are pointing to more strength than weakness in this sector.

Apartment Panel Discussion
Moderator: Jodi Sheahan
Panelists: Scott Cook, Cliff David and Josh Hartmann

As everyone anticipated, it is a hot market.  There are over 1,100 complexes over 100+ units in the market.  In 2016 there were 156 sales, 2017 142 sales and 2018 should be a consistent 10% of inventory trading.  Overall rent growth was about 4% with vacancy rate around 5%.

Cybersecurity is a big threat since they keep PII (Personal ID Info).  Other big concerns are the maintenance/labor costs.  It is becoming more and more expensive each year.  One panelist suggested that there needed to be a video game “Call of Plumbing” vs “Call of Duty” to get more people interested in the trades.

No real big changes on the development, tenant expectation for amenities.  Very common for a “Tech package” in CA and starting to see that more and more in AZ.  Developers are always balancing the “what’s hot today” and what can “be delivered in 2 years” to make sure they don’t pursue a fad.  Privacy and high speed connectivity are still the biggest drivers right now.

New projects are not just seeing Millennials.  It is a good mix of Gen X and Boomers.  Flexibility is a big factor as well as sustainability.

When asked if they would accept Bitcoins as a rent payment in the future, all panelist agreed it was doubtful because of the slow adoption in the industry…but it could happen.

 

Thoughts on recent CRE & Economy Presentation by Dr Ted Jones

Earlier this week, I was invited to attend a presentation by Dr Ted Jones.  As always, Dr Jones never disappoints with his entertaining and candid conversation on the economy and how it impacts real estate.  I have always appreciated his insight and high level take on the economy and how those changes really funnel into the real estate markets.

Here are some of my key takeaways that I found very insightful for those involved in the commercial real estate industry specifically:
-Hurricanes(Irma and Harvey) have a short run pain but long run help the economy.
-There is roughly 91 million Millennials aged from 16-35 (Boomers are 76 million)
-Millennials make up the number 1 home buying segment
-70% of Millennials shopping is done in stores
-Retail should see a boom run for the next 13 years as more Millennials buy homes because of all the additional items they will need to purchase along with the home (think Home Furnishings)
-Retail sales is about 50% of the economy and a potential recession in this section would occur 12+ years at this point
-Commercial Sales Volume is down 21.2% from last year

Regarding some of the proposed Tax Changes:
-If corporate tax is cut from 35% to 20% - that could easily bring back almost $3 trillion to the US economy
-Carried Interest has a high probability of elmination
-Basically, the "fatcats" that own real estate are in the crosshairs because of the current President being heavy in real estate
-The uncertainty of the tax changes has put the brakes on the High-End Housing market because of potential interest deduction removal
-Ending the 1031 exchange is very possible
-Reducing the Capital Gains Tax to 15% is very possible
-Potential of elimination of Component Depreciation and Accelerated Depreciation

Phoenix Metro Specific:
-Phoenix is doing 40% better than the rest of the US as it relates to job growth
-We have a strong job market and a good/stable housing market
-This will have a positive impact on commercial real estate demand for the foreseeable future
-Phoenix has one of the strongest CRE markets in the entire country
-We are the biggest benefactor of the negative cost of housing/taxes/etc in CA

Ending thoughts:
-If there is a recession, it would be very short lived
-Interest rates (specifically the 10 year) will eventually get to the 3-3.5% range and that is where it will probably top out
-US is almost energy independent because of Natural Gas/Oil production
-Concerns are over 1-Return of the ARMs and 2nd loans 2-Inflation (UPS raised rates by 4.9%, FedEx doing the same)

Overall, it was very positive news even with all the recent challenges of natural disasters and political unrest in Washington DC.

 

Nick Miner, CCIM Appointed to CCIM Institute’s 2016 Executive Committee

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CHICAGO, IL November 26, 2015 – The CCIM Institute (www.ccim.com), one of the largest commercial real estate networks in the world, announced its 2016 leadership teams during the organization’s annual conference in Austin, Texas, Oct. 26–30.

picNick Miner, CCIM, Vice President at ORION Investment Real Estate was appointed to serve as a member of the CCIM Institute’s Executive Committee, which is as a governing body for the organization that works in conjunction with CCIM’s Board of Directors, national committees, and staff. The organization’s leadership teams convene at the CCIM Institute’s spring and fall governance meetings.

Nick has been involved in over $163 million in transactions over the course of his 17-year career. Nick began his career with CBRE|MEGA Corp. in Omaha, Nebraska before moving to the Phoenix office of Marcus & Millichap.

Nick offers his clients a diverse CRE background in sales, leasing and management. In the past several years, he has transitioned into a top investment sales broker with a heavy focus on multi-tenant retail properties.

Nick has served as President of the Central Arizona CCIM Chapter, CCIM Institute Board of Directors on various committees including the Executive Committee and President of the CCIM Tech Board of Directors.

The CCIM Institute’s 2016 executive leadership team includes President Steven Moreira, CCIM, president of SWM Capital Advisors in Longwood, Fla.; President-Elect Robin Webb, CCIM, managing director/principal of NAI Realvest in Orlando, Fla.; First Vice President David P. Wilson, CCIM, executive vice president at Lockard Cos. in Cedar Falls, Iowa; and Treasurer Louis H. Nimkoff, CCIM, president of Brio Companies, Winter Park, Fla.

CCIM Institute confers the Certified Commercial Investment Member (CCIM) designation, commercial real estate’s global standard for professional achievement. Learn more about the CCIM Institute’s education and designation program at www.ccim.com.

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About the CCIM Institute 

Since 1969, the Chicago-based CCIM Institute has conferred the Certified Commercial Investment Member (CCIM) designation to commercial real estate and allied professionals through an extensive curriculum of 160 classroom hours and professional experiential requirements. The CCIM curriculum was redesigned in 2010 to reflect changing student demographics and real estate brokerage services, growth in international markets, new technologies, and new delivery models. The core curriculum addresses financial analysis, market analysis, user decision analysis, investment analysis, and negotiation—the cornerstones of commercial investment real estate.

An affiliate of the National Association of Realtors®, the CCIM Institute also offers the powerful technology tool STDB, an online site analysis and demographics resource, and the Ward Center for Real Estate Studies, which provides timely education and training to keep commercial real estate practitioners current in an ever-changing market environment.

Currently, there are nearly 10,000 CCIMs in 1,000 U.S. markets and 31 additional countries, with another 3,000+ practitioners pursuing the designation, making the institute the governing body of one of the largest commercial real estate networks in the world. Visit www.ccim.com for more information.

Nick Miner, CCIM Elected to CCIM Institute’s 2016 Board of Directors

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CHICAGO, IL November 26, 2016 – CCIM Institute (www.ccim.com), one of the largest commercial real estate networks in the world, elected new members to serve on its 2016 Board of Directors during the organization’s annual conference in Austin, Texas, Oct. 26–30.

picNick Miner, CCIM, Vice President at ORION Investment Real Estate was elected to serve as a member of the CCIM Board of Directors, which serves as the governing body for the Institute and convenes at the organization’s spring and fall Annual Governance meetings.

Nick has been involved in over $163 million in transactions over the course of his 17-year career. Nick began his career with CBRE|MEGA Corp. in Omaha, Nebraska before moving to the Phoenix office of Marcus & Millichap.

Nick offers his clients a diverse CRE background in sales, leasing and management. In the past several years, he has transitioned into a top investment sales broker with a heavy focus on multi-tenant retail properties.

Nick has served as President of the Central Arizona CCIM Chapter, CCIM Institute Board of Directors on various committees including the Executive Committee and President of the CCIM Tech Board of Directors.

The CCIM Institute’s 2016 executive leadership team includes President Steven Moreira, CCIM, president of SWM Capital Advisors in Longwood, Fla.; President-Elect Robin Webb, CCIM, managing director/principal of NAI Realvest in Orlando, Fla.; First Vice President David P. Wilson, CCIM, executive vice president at Lockard Cos. in Cedar Falls, Iowa; and Treasurer Louis H. Nimkoff, CCIM, president of Brio Real Estate in Winter Park, Fla.

CCIM Institute confers the Certified Commercial Investment Member (CCIM) designation, commercial real estate’s global standard for professional achievement. Learn more about the CCIM Institute’s education and designation program at www.ccim.com.

###

About the CCIM Institute 

Since 1969, the Chicago-based CCIM Institute has conferred the Certified Commercial Investment Member (CCIM) designation to commercial real estate and allied professionals through an extensive curriculum of 160 classroom hours and professional experiential requirements. The CCIM curriculum was redesigned in 2010 to reflect changing student demographics and real estate brokerage services, growth in international markets, new technologies, and new delivery models. The core curriculum addresses financial analysis, market analysis, user decision analysis, investment analysis, and negotiation—the cornerstones of commercial investment real estate.

An affiliate of the National Association of Realtors®, the CCIM Institute also offers the powerful technology tool STDB, an online site analysis and demographics resource, and the Ward Center for Real Estate Studies, which provides timely education and training to keep commercial real estate practitioners current in an ever-changing market environment.

Currently, there are nearly 10,000 CCIMs in 1,000 U.S. markets and 31 additional countries, with another 3,000+ practitioners pursuing the designation, making the institute the governing body of one of the largest commercial real estate networks in the world. Visit www.ccim.com for more information.

Contact: Sara S. Patterson at 312.321.4531 or spatterson@ccim.com

ORION’s Nick Miner, CCIM Appointed to CCIM Institute’s 2015 Executive Committee

CHICAGO, IL October 30, 2014 – The CCIM Institute (www.ccim.com), one of the largest commercial real estate networks in the world, announced its 2015 leadership teams during the organization’s annual conference in Los Angeles in Oct. 17-21. The CCIM Institute confers the Certified Commercial Investment Member (CCIM) designation, commercial real estate’s global standard for professional achievement.

Nick Miner, CCIM, Vice President of ORION Investment Real Estate was appointed to serve as a member of the CCIM Institute’s Executive Committee, which is as a governing body for the organization that works in conjunction with CCIM’s Board of Directors, national committees, and staff. The organization’s leadership teams convene at the CCIM Institute’s spring and fall business meetings.

Nick has been in commercial real estate since 1998.  He has completed over $142 million dollars in sales and leasing activity.  His primary focus is to assist investors in the acquisition and disposition of investment properties.  Nick obtained his CCIM designation in 2003 and has been active locally and nationally ever since.

The CCIM Institute’s 2015 executive leadership team includes President Mark Macek, CCIM, president and owner of Macek Companies, Inc., in Great Falls, Mont.; President Elect Steven Moreira, CCIM, president of Magic Properties and Investments, Inc., in Longwood, Fla.; First Vice President Robin Webb, CCIM, managing director/principal of NAI Realvest in Orlando, Fla.; and Treasurer Charles C. (Chuck) Connely IV, CCIM, managing director of EPR Financial Services in Kansas City, Mo.

About The ORION Investment Real Estate
ORION Investment Real Estate (“ORION”) is a leading commercial real estate investment brokerage firm in the Western United States.  With a multi-billion dollar track record, ORION focuses on the sale of income producing real estate.  ORION’s principals have closed hundreds of retail, office, industrial, and multifamily transactions throughout the United States.  ORION is headquartered in Scottsdale, Arizona.  For more information on ORION, please visit our Web site at www.ORIONprop.com.

About the CCIM Institute
Since 1969, the Chicago-based CCIM Institute has conferred the Certified Commercial Investment Member (CCIM) designation to commercial real estate and allied professionals through an extensive curriculum of 160 classroom hours and professional experiential requirements. The core curriculum addresses financial analysis, market analysis, user decision analysis, investment analysis, and negotiation—the cornerstones of commercial investment real estate.

An affiliate of the National Association of Realtors®, the CCIM Institute also provides members with powerful technology tools including the Site To Do Business, an online site analysis and demographics resource.

 

Information about the Executive Committee:

Except as to actions specifically stated in these Bylaws or by law to require approval of or to be taken by the Board of Directors, the Executive Committee shall have all of the power of the Board of Directors between meetings of the Board of Directors; provided, however, that the following powers shall be expressly reserved to the Board of Directors: (a) the election, appointment or removal of any officer or committee member, other than the appointment or removal of the Executive Vice President; (b) any action with respect to which a Supermajority Vote of the Board of Directors is required pursuant to Article V, Section 9; (c) the adoption, modification or amendment of the Governing Policies; (d) any action inconsistent with the Articles of Incorporation, these Bylaws and/or the Governing Policies or any standing resolution or direction of the Board of Directors; (e) the approval or modification of the education and designation requirements for candidates and designees under Article V, Section 2; (f) any change or modification to tuition fees involving more than fifteen (15%) percent of such tuition fees; and (g) the amendment of these Bylaws or the Articles of Incorporation. The Executive Committee shall report its actions as appropriate to the Board of Directors.

Composition:

  • President
  • President–Elect
  • First Vice President
  • Treasurer
  • Immediate Past President
  • Eight members elected by the Board of Directors from among its membership for staggered two–year terms
  • Presidential Liaisons as ex–officio, non–voting members
  • Chair of the Governance Committee as an ex–officio, non–voting member
  • CCIM Institute representative to the NATIONAL ASSOCIATION OF REALTORS® as an ex–officio, non–voting member
  • Executive Vice President as an ex–officio, non–voting member
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