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Solid economic growth good news for commercial market

According to forecasts from the National Association of Realtors, commercial real estate vacancies are expected to fall about 1.1 percent to 11.9 percent. The industrial sector is also set to experience a 1.1 percent fall in vacancies to 7.8 percent over the coming year. Vacancy rates are also expected to fall in the retail and multifamily sectors of the commercial real estate market as well.

The chief economist for the NAR suggests that the decrease in vacancy rates is related to increasing economic health. Consumer confidence and increased spending are likely to keep demand strong for commercial real estate space. However, it is also likely that prices are not going to increase much in the near future. Hurricane Harvey may also cause a temporary slowdown in the market with the apartment sector taking the hardest hit in the short-term.

Investment property considerations

It's not unusual for people living in California to consider the purchase of an investment property. Many people appreciate the security of owning real estate rather than worrying about ever-fluctuating stock prices. While real estate can be a good investment, it also has its pitfalls, particularly for novice property owners.

Prospective real estate investors may be able to protect themselves by carefully studying average rents in the area where they plan to buy. A long-standing rule in rental property investment circles is that one should only buy a building if the monthly rental income will be at least 1 percent of the purchase price.

Using technology to differentiate commercial property

Commercial property owners in California might be able to optimize their properties by implementing smart building technologies. These technologies may help by connecting the various processes within buildings to improve energy efficiency while providing visualizations of how the various systems are working.

Smart building technologies are available because of the development of the internet of things. This technological advance helps by connecting such systems as the HVAC, physical security and lighting systems so that they can be monitored from anywhere through wearables and mobile devices. Having these types of systems installed may allow commercial property owners to differentiate their buildings from others that are available in the marketplace.

Real estate investing in the age of Trump

The election of United States President Donald Trump in 2016 has left California investors wondering about the future of commercial real estate. There were many reasons to be optimistic; after all, the Trump fortune was largely built on his real estate development acumen, and thus it would stand to reason that this sector may flourish under his administration. After more than six months of Trump in the White House, however, the bullish sentiment on commercial real estate has subsided to some extent. Nevertheless, there is still plenty of action in this economic sector.

According to the recent NREI/Marcus & Millichap Investor Sentiment Survey, the initial enthusiasm of having a major developer as commander-in-chief has been replaced with a certain level of uncertainty. Commercial real estate closings are still taking place, but not as much as they did before the election. Survey respondents believe that the economic recovery that started in the Obama administration will continue under Trump, but investors are also expecting to see the sector soften over the next two years.

CRE market strong during the first half of August

California residents who are involved in the commercial real estate market likely know that August is normally the slowest month of the year for transactions. This year has been different, however, and brokers across the nation have reported brisk business thus far during the first part of the month.

Bisnow surveyed brokers from coast to coast about the commercial real estate markets in their respective areas. Almost unanimously, the brokers responded with reports that the summer so far has been very busy. In the San Francisco Bay Area, for example, brokers report that 2.4 million square feet of offices have been leased by companies during the last three months. By comparison, just 700,000 square feet of offices were rented during the first quarter of the year. Colliers International reports a similar story for New York commercial real estate. In July, sales were up by 10 percent year-over-year from 2016 and by 2.2 percent over the prior month.

2028 Olympics could be a boon for the Los Angeles CRE market

California residents may be aware that the International Olympic Committee has announced that the 2028 Summer Olympic Games will be held in Los Angeles. This will mark the third time that the city has hosted the quadrennial games, and area real estate developers are hoping that the event will help Los Angeles to cement its reputation as a global commercial hub. In addition to attracting large numbers of tourists from around the world, hosting the games could prompt city planners to approve a number of mass transit and infrastructure projects that have been delayed for years.

Los Angeles lies just outside the top 10 world commerce centers according to the Global Power City Index, but industry analysts believe that the economic impetus of hosting the Olympic Games could influence these rankings in the years ahead. World cities are judged based on factors such as livability, business innovation and trade, and they tend to attract companies in growing or emerging areas such as technology and health care.

Experts warn of looming California housing crisis

California's economy grew at a rate of 3.2 percent in 2016, and the Golden State's gross domestic product has now reached $2.5 trillion according to the Legislative Analyst's Office. This kind of growth creates jobs and stimulates residential real estate markets, but getting even small-scale housing projects off the ground can be challenging for developers. Many developments are fiercely opposed by organized groups of local residents, and some leading media outlets have described the developing situation as a full-scale housing crisis.

Prices soar when supplies dwindle, and commercial real estate developers around the country have been moving away from retail and office space in recent years and concentrating more on residential and mixed-use projects. Abandoned shopping malls and vacant big-box retail stores are becoming familiar sights even in areas with thriving economies, and a corporate downsizing trend has lowered demand for office space in recent years.

Proposed rule change would ease appraisal requirements

Lenders in California and around the country are generally cautious when loans are secured by real estate, and they tend to follow safe and sound banking practices when judging area market conditions and local property values. However, federal regulations require real estate evaluations to be performed by licensed or certified appraisers in certain situations. The minimum threshold for commercial real estate loans has remained unchanged since being set at $250,000 by federal banking agencies in 1994, but it would be increased to $400,000 if proposed rule changes take effect.

The proposed changes, which were announced on July 19, apply to rules that were established following the passage of the Financial Institutions Reform, Recovery, and Enforcement Act in 1989. FIRREA required federal banking agencies to establish appraisal standards, and Title XI of the law was amended in 1992 to explicitly permit regulators to set firm thresholds. The proposal to revise these rules was made after a sweeping review of federal banking regulations was conducted in early 2017.

Real estate market opportunities with e-commerce growth

Cities near major metropolitan areas across the country are benefiting from the boom in e-commerce in a way that is impacting the real estate market. CNBC looks at one such city in California where fulfillment centers for a variety of online businesses are now providing jobs for residents. The infusion of cash into these local economies is proving to be a boon for commercial real estate and could provide a pull for developers.

Since 2012, the growth of distribution and fulfillment centers designed to deliver to individual customers has created around 10,000 jobs in the county of San Joaquin. Unlike positions in warehouses focused on bulk orders, these jobs offer a higher pay. A professional in the commercial real estate sector claimed these new warehouses also require more staff to meet the demands of small orders.

Commercial real estate market verges on breakdown

Prices and valuations of commercial real estate have soared across many markets, including Los Angeles, and the national averages have grown as a result. However, an author with MarketWatch stated that the end of the national bull market may well be nigh. The Northstar Commercial Partners chief executive and chairman pointed to an increase in vacancies and decrease in rent for office space across several of the largest metropolitan markets. He further noted that a "flurry of activity" is often seen simultaneously and signals the end of the bull run.

The author referenced Los Angeles as a similar case, but he provided more exact numbers on New York City. Here, he said, local employment is still supporting growth of commercial real estate, yet the demand is taking a hit. Vacant space was trending upward in the second quarter to 8.2 percent. Developers are still putting the venture capital and bank lending available to them into building and renovating even as returns fall.

Creative Solutions for Complex Legal Issues

Contact Henry B. LaTorraca

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