Archive for August, 2012

Country Superstar-Themed Eats All the Rage

Monday, August 27th, 2012
Excuse me, would you like a little concert with your dinner?
If so, then you are more likely to get just that in the near future, as the popularity of country music continues to drive the development of new country superstar-themed venues.
Last week, two Arizona businessmen announced the formation of the Rascal Flatts Restaurant Group, and hope to cash in on the over 21 million albums and 25 million digital downloads sold by one of country music’s top acts.
Plans call for development of themed restaurants throughout the U.S. and Canada. The first location is being developed in the CityNorth development in Phoenix, with the 14,000-sq.-ft. restaurant featuring food at attractive price points, live nationally recognized entertainment, a state-of-the-art sound stage, an elevated bar, indoor/outdoor bar and retail space. Ten more restaurants are planned in 2013 and 2014:
Locations (2013):
Tyson’s Corner/ DC Area
Columbus, OH
Pittsburgh, PA
Raleigh, NC
Minneapolis, MN
Long Island, NY
Locations (2014):
Charlotte, NC
Tampa, FL
Boston/ Cambridge, MA
Madison, WI
Behind the venture are Philip Lama, CEO and Eric Soe as president. Lama, CEO of Broken Road Productions, is the exclusive licensee and is no stranger to the music scene. A native New Yorker, he grew up in the business in the Hamptons and New York City, and served as the CFO for another country restaurant chain with live entertainment. He was also CEO of Mastro Capital Partners. Lama developed and financed several restaurants and partnered with Soe, opening PJ’s Grill in Tempe, AZ. Soe has served as a top executive for both domestic and international Fortune 500 companies including MCI WorldCom.
Another popular country superstar, Oklahoma native Toby Keith, has already been in the restaurant business since 2005, when he opened units of his Toby Keith’s I Love This Bar & Grill in Oklahoma City and Las Vegas. Now comes word that Keith is planning to open 19 more units around the U.S. by the end of the year.
To date in 2012, Keith has opened restaurants in Dallas, Rancho Cucamonga, Calif., Cincinnati, and Folsom, Calif. New units are scheduled in Chicago, Virginia Beach, Va., Washington, D.C., and Syracuse, N.Y.

In the News (Aug. 20-24)

Sunday, August 26th, 2012
Check out these links to some of the new and noteworthy headline stories that are trending in the world of commercial real estate.

Going Global in the Property Olympics

Sunday, August 19th, 2012
While watching the nonstop London Summer Olympics coverage recently, I was struck by the global appeal of this mega sporting extravaganza. As the Games come to a close following two full weeks of competition, as expected the world’s two greatest superpowers, the US and China, racked up impressive overall medal counts. But for me, the Games are always about the stories behind the athletes themselves, and of the individual standouts who inevitably emerge from countries large and small.
The same is true for the increasingly global nature of institutional real estate, which, for the time being anyway, we could dub the “Property Olympics.”
A good example is the pending debut of real estate investment trusts (REITs) in the Republic of Kenya in East Africa. While REITs have gained traction in recent years in Europe and in the Asia-Pacific region, now comes word that the huge land mass known as the continent of Africa is joining the fray. By year’s end, REITs are expected to debut in tiny Kenya with 43 million residents, after the country’s Capital Markets Authority (CMA) recently finalized the REIT framework.
The concept of creating REITs in Kenya is not exactly new, having been first floated in 2008. The initiative stumbled in 2009 when the Kenya Revenue Authority had concerns over the tax-exempt status typically given to REITs, but was rekindled in 2011 when a new finance bill proposed tax incentives on REITs to create new residential housing stock that is sorely needed in Kenya’s urban areas.
Emerging markets like Kenya view the creation of REITs as a way to expand the country’s property investment market via a larger worldwide stage, as it opens the doors to individual investors. This is the same concept embraced in the U.S. when the REIT Act of 1960 was enacted by Congress and launched one of the largest providers of capital for the U.S. commercial real estate market.
Ultimately, creating a market for REITs improves and expands the availability of capital. Countries with healthy, transparent capital markets encourage investors to grow their portfolios for the future and participate in the potential appreciation that commercial real estate can provide.
REITs certainly have become increasingly popular in a variety of countries. Earlier this year, Goldman Sachs announced its intention to set up a new private REIT in Japan to snatch up undervalued properties there. This follows a Deutsche Securities pronouncement in February that Japanese REITs (or so-called J-REITs) would double their capital raise in 2012 over 2011, totaling an estimated $6.2 billion.
In Kenya, Housing Finance managing director Frank Ireri expects REITs top play a significant role in spurring growth in the country’s property market. “The market is ready for REITs. They will give opportunity for all to participate in the property market. Property owners will also be able to partially transfer buildings to REITs in ratios of choice,” he said.
Kenyan REITs will be structured either as development and construction REITs (D-REITs) or income REITs (I-REITs). D-REITs will be limited to the acquisition of real estate and undertaking development of residential and commercial properties for sale or lease, and will be allowed to convert into I-REITs. I-REITs will acquire and invest in income-producing properties.
REIT securities will trade in the form of unit trusts through listing on the Nairobi Securities Exchange (NSE). Investors will need a minimum of roughly $12,000 to subscribe for REIT units. The CMA will require D-REITs to have a minimum of seven investors and a minimum initial capital of around $12 million, while I-REITs must have about $36 million in minimum capital.
The regulations also require a REIT fund to keep at least 25% of the total securities as free float at any time for sale to independent investors other than its promoters or managers. Income REITs will be required to invest at least 75% of their total asset value directly in income-producing real estate within two years. At the end of that term, they should be earning 70% of their income from rent or direct investments from real estate, and they must also distribute a minimum of 80 percent of their annual net income to qualify for tax benefits.
While the obstacles to setting up global REITs have been many and delayed immediate adoption, as with any new challenge, success will surely be proven by performance on the global stage. After all, just about anything seems possible if Jamaica can field a competitive bobsledding team, right?

This story is also available on Globest.com.

In the News (Aug. 13-17)

Saturday, August 18th, 2012
Check out these links to some of the new and noteworthy headline stories that are trending in the world of commercial real estate.

Retailers’ Results Show Promise

Monday, August 13th, 2012
 
One of the best ways to gauge retailing trends is to observe the performance of stores you frequent in real life. For example, I’m a fast-food junkie, and my wife and daughter have been known to frequent department stores, on occasion.

Based on the recent Q2 results of five key retailers – two fast-food purveyors and three department stores – there is generally reason for optimism in this consumer-driven economy. A key “metric to watch” is same-store sales, and overall, things appear to be looking up.

On the fast-food front lines, Wendy’s reported a 3.2% increase in same-store sales for the second quarter of 2012, and revenue increased 3.8%. Also, Jack in the Box reported a 3.4% increase in same-store sales for the third quarter ended July 8, 2012, but earnings per share were down.

Meanwhile, in the department store realm, Dillard’s reported a whopping 97% increase in second quarter earnings per share. It saw a 3% increase in comparable store sales while total merchandise sales grew 2%.

Kohl’s Corp. was the key outlier in the results department. Second quarter net sales of $4.2 billion were down 1% from a year ago, and comp store sales dropped 2.7%. Still, Chairman Kevin Mansell remained positive, saying, “As we look forward to the fall season, we are excited about the fashion content and level of newness in our assortments.”

Nordstrom Inc., well known as a major retailing bellwether, saw Q2 same store sales increase 4.5%, and net sales jumped 7.4%.

These results are by no means the only method of gauging economic health. My good friend Robert Bach, national director of market analytics at Newmark Grubb Knight Frank, recently opined that recent increases in job openings and lower levels of layoffs are pointedly positives. “Despite the recession and financial crisis in Europe and slower growth around the globe, the U.S. still appears likely to avoid a near-term recession,” says Bach.

In the News (Aug. 6-10)

Monday, August 13th, 2012
 
Check out these links to some of the new and noteworthy headline stories that are trending in the world of commercial real estate.

Global office rents and real estate values little changed during Q2 2012

Trophy tower likely to draw lots of suitors

 

Pace of 2012 Bank Failures Slows

Friday, August 3rd, 2012
 
While eight banks failed in July, a slight increase from the seven failures in June, the overall pace of bank failures has declined. According to Trepp LLC, 39 banks closed in the first seven months of 2012, down from 61 in the first seven months of 2011 and 108 in the same period in 2010.
 
Despite the slowing pace, there are still 190 banks at high risk of failure, so more failures can be expected over the next several months.
 
Trepp is a leading provider of commercial mortgage-backed securities and commercial mortgage information, analytics and technology to the global securities and investment management industries.
 
That is not to say that all banks are feeling the heat. For example, Tulsa-based BOK Financial reported second-quarter earnings jumped 41.4% to a record $97.6 million in the second quarter, far exceeding analysts’ expectations.
 
Here are a few highlights from the July report:
  • Commercial real estate exposure was the main source of problem loans for the banks that failed in July, comprising $142.8 million (70.4%) of the total $202.8 million in nonperforming loans at the failed banks. Construction & land loans accounted for $84.7 million (41.8%), while commercial mortgages made up $58.1 million (28.6%) of the non-performing total.
  • Residential mortgages were a secondary source of distress, with $38.9 million (19.2%) of the total nonperforming loans.
  • C&I loans contributed $4.5 million (2.2%) of the nonperforming total. Other nonperforming loans, including unsecured consumer loans, totaled $16.6 million (8.2%).
  • The July failures occurred in the Southeast (five failed banks) and the Midwest (three failed banks).
  • Four of the closures occurred in Georgia. Georgia ranks first for failures, with nine failures so far in 2012 (23% of the year-to-date figure) and 84 since the current failure cycle started in late 2007.
  • One failure occurred in Florida, which ranks second for bank failures. Five banks have been closed in Florida in 2012 and 63 have been closed since the current cycle began.
  • One bank was closed in Illinois, which ranks third for failures in the current cycle and is tied for second in 2012. There have been five failed banks in Illinois during 2012 and 51 in the current cycle.
  • The remaining two failures were in Kansas and Missouri, representing the first failures in these two states for 2012. Both Kansas and Missouri have featured less prominently in the current cycle of failures, with nine and thirteen failed banks, respectively, since late 2007. Nevertheless, Missouri has seven banks at high risk of failure according to Trepp.
The banks that failed in July had been on the Trepp Watchlist for a considerable amount of time prior to failure, for a median of 14 quarters. Two of the banks had been on the Trepp Watchlist for 16 quarters prior to failing, which is a new record length. (Note: one of the institutions that failed was a thrift; thrifts are not yet fully integrated into the Bank Navigator risk metrics.)
 
The July failures featured very high Trepp fail risk scores. Six were at 10, the highest possible score, and one was at 9.8. Trepp considers any score above 8 to represent a high probability of imminent failure.
 
Loss severity rose in July, with the estimated costs to resolve the failed banks at 24.7% of failed bank assets, up from 15.6% in June. For year-to-date 2012, loss severity has averaged 22.5%, up from 20.6% for full-year 2011.
 
Loss-sharing was featured in four of July’s failures, covering 32% of the total failed bank assets for the month. Loss-sharing appears to be on the decline, covering only 30.6% of failed bank assets so far in 2012, as compared to the 51.6% of failed bank assets covered by loss-sharing in 2011.
 
In two of the transactions that did not feature loss sharing, specifically those of Second Federal Savings and Loan Association of Chicago and Montgomery Bank & Trust, the buyers only acquired a small amount (7.1%) of the total assets. The FDIC retained the remaining assets for later disposal.
 
The Pace of Closures: Outlook
Despite the uptick in June and July, the pace of closures in the first seven months of 2012 has fallen to 5.6 per month, noticeably lower than the 2011 average of 7.7 per month. At the current pace there would be 67 failures in 2012, which is a little higher than the FDIC estimates from April of 50 to 60 for the full year.
 
The slower pace of bank closures is attributable to more time being “added to the clock” for ailing banks, as well as some actual progress among these banks in capital raising and performance improvement. However, the slower pace of closures will likely mean that failures will continue into 2013 and possibly beyond. Much will depend on the strength of the economy in general and real estate market conditions in particular.
 
As of Q1 2012, there were 211 banks on the Trepp Watchlist that were deemed to be at high risk of failure. Twenty-one of those have failed or been acquired, leaving 190 still on the list. (Note: data for Q2 2012 is still being collected.)
 
Among these high-risk banks, the greatest institution counts are in Georgia (36 banks), Florida (26), Illinois (24), Minnesota (11), North Carolina (10), Tennessee (8) and Missouri (7). These states are most likely to continue to experience bank failures in the months ahead.
 
The Trepp Watchlist has been tracking banks at elevated risk of failure since 2005. According to Trepp, banks on the Watchlist have been nearly 200 times more likely to fail than banks not on the list.
 
Trepp Bank Navigator is a web-based financial institution surveillance and risk management system that tracks detailed financial reports, risk scores and rankings on nearly 12,000 commercial banks and bank holding companies.

In the News (July 30-Aug 3)

Friday, August 3rd, 2012
 
Check out these links to some of the new and noteworthy headline stories that are trending in the world of commercial real estate.