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TODAY’S HEADLINES / March 13, 2007 / BATON ROUGE BUSINESS REPORT WEEKLY REAL ESTATE REPORT
Chicago developer Bill Spatz was in Denham Springs Friday evening to raise interest in one of the four projects he has in the works for the Capital Region. Spatz is developing Crystal Lakes, a 271-lot subdivision at the intersection of Lockhart and Burgess roads. Development of the subdivision is set to start in the next three months, and Spatz says the first homes in Crystal Lakes will be ready by November. Prices will range between $185,000 and $350,000. In a twist, Spatz will build the homes, and Prime Locations Realty -- a company formed by David Underwood, the Realtor who helped him find the site for Crystal Lakes -- will oversee construction and sell the homes.
Although the housing market has slowed since the busy days after Hurricane Katrina, Spatz says Baton Rouge is poised to grow some more. "The second wave has yet to come," he says, noting that the slow pace of rebuilding in New Orleans is frustrating some business owners and residents. Spatz, who came into the market about six months after Katrina, has mostly handled retail and office development in the north, but he did build one subdivision. He didn't plan on building any retail or office in Louisiana, but says he changed his mind once he saw some available land on Summa Avenue. Spatz plans to build an 88,000-square-foot office building on the site, right behind Jacobs Engineering. Construction of the office building is set to begin in July, with the facility opening in October or November 2008. No space has been leased in the building yet, but Spatz says the demand is there. "There hasn't been any private Class A office space built in Baton Rouge in at least five years," he says. Spatz is also developing Learning World, a 10,000-square-foot pre-school/children's playground next to Crystal Lakes and a 5,100-square-foot shopping center in Port Allen. "We're looking at Baton Rouge as a long-term market," he says.
(Timothy Boone)
Officials with MIE Properties-LA, the owners and developers of the Barringer-Foreman Technology Park, say they've leased 90% of the space in the center. The 225,000-square-foot facility off Airline Highway counts Healing Place Church, DHL Express and the General Services Administration as some of its major tenants. MIE is currently developing a 24,000-square-foot retail building, which will support the needs of park tenants with restaurants, medical offices and business service centers. MIE says it's looking for more land in Baton Rouge to develop additional centers.
(Timothy Boone)
Construction employment fell nationwide by a seasonally adjusted 62,000 jobs in February, the steepest one-month drop since 1991, says the Associated General Contractors of America. The AGC blames the drop on ice storms and a sluggish housing market. Ken Simonson, chief economist for the AGC, says non-residential construction should pick up since architects and engineers added workers for the 36th straight month. Simonson says refinery, power plant, manufacturing, hotel and hospital construction should increase in the next few months.
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Creekstone Development, the developer responsible for the Towne Centre at Cedar Lodge, has sold two sites in their mixed-use project. R&F Investments purchased a 1.7-acre tract next to the Residence Inn by Marriott for about $978,000, or $12.50 per square foot. The new owner intends to construct a 30,000-square-foot, two-story office building, and has about half of it spoken for. The remaining 15,000 square feet will be offered for lease. George Kurz with Kurz & Hebert Commercial Real Estate brokered the transaction.
In a related deal, Creekstone sold a 3.5-acre site to Summa Office Park LLC, just east of The Reserve, for $18.50 per square foot. According to Kurz, the purchasers had no immediate plans for development, but they were negotiating with several build-to-suit type tenants. Kurz says these two sales represent the strong demand for well-located sites in the Baton Rouge market. "Good, quality vacant land is becoming harder and harder to obtain," he says.
(Appraiser Tom Cook owns Cook Moore and Associates. Reach him at 293-7006 or TCook@cookmoore.com.)
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I met with one of my California-based lenders last week and asked, "What scares you about the current market?" He is used to my cheerful greetings and had a simple answer for me: "There is a lot of money out there, and deals are getting done on terms that do not make sense." One of the terms he focused on was interest-only payments. Now I have seen a lot of permanent deals done with interest-only payments (called "IO" loans in the trade) in the first couple of years, with the balance of the 10 years being based on a 30-year amortization. With more competition came longer IO periods to the point where it is now not unusual to get IO terms for the entire 10-year loan period.
By itself this aggressive compromise to standard (and dare I say prudent) loan underwriting is not enough to make a bad loan. After all, continued appreciation of the underlying asset value should bale you out in 10 years, right? But combine it with aggressive cash flow underwriting that presumes increases in rental rates above the standard 2% to 3% that a good appraiser will use (please note my restraint at this point) -- and historically low cap rates being applied by those same good appraisers -- and Houston, we may have a problem when the loan comes due.
As a borrower, I could live with a full-term IO loan if I had real upside in a property's value and/or cash flow. But I would have to think twice before pushing a property to the max AND getting IO terms. I know the loan is non-recourse, but that is no reason to raise the chances that I will be giving the keys back to the lender at maturity.
The point is to pay the money back.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
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Residential/retail could go in by casino: The owner of a 36.3-acre tract of land on the Mississippi River just north of Hollywood Casino says he's working with developers who are looking at building residential/retail projects on the site. Pete Clements will update the Downtown Development District Commission today on his plans. Clements says he signed a purchase agreement two years ago to buy the downtown site, which was being used as a limestone distribution yard. Now that the company has been relocated to West Baton Rouge Parish and wetlands permits have been issued, Clements says he can talk to developers about other uses. Livingston lots sell for $1.56 million: John Blount, a Livingston Parish developer and contractor, bought 52 townhome lots in The Lakes at Juban Crossing development for $1.56 million in a deal that closed last week. The lots take up six acres, says Tom Delahaye, managing partner of CST Land Developers, which owns The Lakes at Juban Crossing. This is the largest townhome development of its kind in Livingston, and the property is across from the proposed Juban Crossing mixed-use development.
TODAY’S HEADLINES / March 6, 2007 - from:
http://www.businessreport.com/dailyreport.cfm?cid=53
David Waltemath, who is developing a subdivision on the site of the old Shenandoah Country Club Golf Course, has exercised his option to buy the final 39 acres for about $1.2 million. Construction has started on the first houses in the Green Trails of Shenandoah, and Waltemath says sales have been strong. Of the 199 lots he's put on the market, all but 10 have sold. He credits the sales to the good location and amenities offered in Green Trails, such as tennis courts, a swimming pool and small parks. Construction is set to start next week on the walking trails that wind through Shenandoah.
(Timothy Boone)
Jones Lang LaSalle, a real estate money management company based in Chicago, has arranged $11.5 million in financing for the purchase of The Park at Bluebonnet, an upscale apartment complex. Global Asset Alternatives of Atlanta will buy the 352-unit development. Officials with Global Asset say they were interested in The Park because of its proximity to the Mall of Louisiana and Perkins Rowe.
The Christian Science Monitor says easy credit is backing the housing industry into the worst mortgage crisis since the 1980s. An increasing number of people who bought homes with subprime mortgages are seeing higher interest rates kick in, leading to more foreclosures and defaults. Some housing experts worry a pullback could make it more difficult for people with poor credit to buy homes, which could slow down an already sluggish market. Read the article here.
The majority of Real Estate Weekly readers say they've seen an increase recently in the number of local Realtors. Fifty-five percent say there are more Realtors, while 4% say the number has gone down. Forty-one percent say they haven't noticed a change in the number of people in the real estate business. Nearly 350 people participated in the survey.
Today's question:Are you seeing a tightening in the local subprime lending markets?
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Midwest Medical Supply of St. Louis paid $2 million for the Albertsons grocery store building at the corner of Joor and Greenwell Springs roads. KLAFF Realty of Chicago held the 62,500-square-foot building. The price, about $32 per square foot, is significantly less than it cost to build it. The store was on a 7-acre site, but KLAFF kept the two acres adjoining the frontage along Greenwell Springs Road and will sell it separately. The company will use the property for a retail distribution facility. MMS plans to renovate the building in order to change its use from retail to distribution. Grey Mullins and Brent Garrett with Beau Box Commercial Real Estate brokered the transaction.
(Appraiser Tom Cook owns Cook Moore and Associates. Reach him at 293-7006 or TCook@cookmoore.com.)
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When interest rates move, they can move quickly. The reasons for quick movements can be varied and difficult to pinpoint. The rapid downward movement in the 10-year Treasury the past week is fairly easy to explain. There was a panic in the stock market (mostly the Asian market) that caused portfolio managers to dump their shares and stash the cash in a safe place. And there is no safer place than in U.S. Treasuries.
All this panic buying of Treasuries had a natural and predictable result. When demand goes up, the price goes up. And as Willie Staats used to drill into our heads in banking class at LSU, when the price of a fixed rate security goes up, the yield goes down. In this case, the 10-year yield dropped to its lowest point in three months at just under 4.5%. It appears this rally in the bond market is losing steam as confidence in the stock market returns, so expect rates to rebound over the next few days.
During a conference call Monday with other mortgage brokers across the country, I heard reports that some permanent lenders had been widening their spreads by as much as 10 basis points in response to the dip in the 10-year Treasury. As I have said in the past, no lender wants to be out of position when rates change. A sudden drop in Treasuries could leave a lender without a profit unless the spread is adjusted. If you have been in discussions with lenders on interest rates, you might want to check again to see if the pricing quote is still valid.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
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Costs cause II City Plaza plans to change: Plans have changed for Mike Wampold's II City Plaza office building on North Boulevard. The developer says construction costs have caused the building's parking garage to be built as a separate structure instead of as the lower levels of the 260,000-square-foot building. Construction of the office building is set to start early this summer and finish by December 2008. Office building, hotel sell: Donnie Jarreau Real Estate closed on two multimillion-dollar deals Thursday, selling an office building and hotel. Bobby Waters, an investor and developer from Walker, bought the old Amedisys building on South Sherwood Forest Boulevard for $3 million. Waters plans to make major renovations to the 36,000-square-foot ANNC Plaza building and will move some of his offices there. Trimarian Hospitality of Biloxi, Miss., paid $2.6 million for the Best Western-Lobdell. The 50-room hotel will remain a Best Western, but Trimarian, which owns hotels across the Gulf Coast, plans to make some renovations. Central TND gets green light: The Central Planning Commission approved specific plans for a 185-acre traditional neighborhood development Thursday night, the first project to go through the East Baton Rouge Parish TND ordinance. The next step for the Village at Magnolia Square is to complete the engineering drawings for the utility systems that will run through the community, says developer Jimmy Nunnally. Construction could start on Magnolia Square at the start of the summer. Investors plan TND south of LSU:A 550-acre tract of land at the intersection of Burbank and West Lee drives has been sold to a group of New Orleans investors for $20 million. Walker Baus, an attorney and investor, says plans are to build a traditional neighborhood development on the site, which is bordered by West Lee, Nicholson Drive and Burbank.
TODAY’S HEADLINES / February 20, 2007 - from: http://www.businessreport.com/printversion.cfm
The East Baton Rouge Parish Planning Commission is set to vote Monday on approving plans for a new office building off Essen Lane, a new bottling plant for Coca-Cola and an upscale hotel on Bluebonnet Boulevard. The Summa Office Plaza will be nearly 89,000 square feet near the intersection of Essen and Summa, while the new Coke plant would be built near Baton Rouge Metro Airport. The Planning Commission staff has recommended approving both projects. The Bluebonnet hotel, which would be built on the site of the half-completed Jimmy Swaggart dorm, does not have a recommendation from the commission staff because the developers are asking for a 396 parking spot waiver.
Home starts dropped by 14.3% in January, hitting the lowest point in almost 10 years. At the same time, the U.S. Commerce Department says building permits continued falling, dropping 2.8% in the month. New home construction actually increased by 8.9% in the Northeast and fell 11.8% in the South.
W Resources has bought the property known as the Trahan Tract in Zachary for about $2.8 million or $17,150 per acre. The property consists of a 144-acre tract, which adjoins a 24-acre tract, so the total purchase was for about 168 acres. The land is on the west side of Old Scenic Highway, also known as Hwy. 964, between Pride-Port Hudson and Rollins roads. The site is prime for residential development, but the new owner could not be reached for comment. Michael Worley represented W Resources.
(Appraiser Tom Cook owns Cook Moore and Associates. Reach him at 293-7006 or TCook@cookmoore.com.)
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While at my Mortgage Bankers Conference in San Diego recently, I visited with my Fannie Mae lenders and others involved in the financing of apartment communities across the country. The mood is good with volumes up (Fannie Mae reported its second best year in 2006) and expectations of more good business in 2007.
The few limited concerns coming out of the conference for multifamily are: Insurance costs -- Even though we had a fairly calm hurricane season in 2006, insurance costs have not rebounded. Now that I own a generator and spent close to $1,000 to prepare my home for the next round of power outages, we should expect calm hurricane seasons for the foreseeable future. The insurance industry is apparently unmoved by my efforts, and high insurance costs are still a concern for lenders. This was a particularly active topic when prospects for our area were discussed.
Broken condo deals -- The lenders are concerned about new condo construction as well as condo conversions where unsold units are going into the rental market. This is more of an issue for Florida developments than for our market in Baton Rouge, but to some extent we are being painted with the same brush as the developers in the Sunshine State. I do not see broken condo deals being an issue for our area but will have to tell the story when speaking to the national lenders.
Affordable housing along the Gulf Coast is a huge initiative for Fannie Mae, and we should expect significant interest from them in 2007, particularly in the Low Income Housing Tax Credit arena. More good news from the San Diego conference next week.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
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City makes list of top 10 gainers: Home prices in Baton Rouge increased by 12.7% in the fourth quarter of 2006 over the year before, according to the National Association of Realtors, putting the area among the top 10 biggest gainers. The median home price in the Capital Region was $173,400 the last three months of 2006. Baton Rouge was one of the few winners during the quarter, according to figures in The Wall Street Journal. Breakfast, lunch place set to open: A well-known Mandeville-based restaurant chain is set to open its first Baton Rouge location this spring. Another Broken Egg Cafe has signed a lease to move into the space that had been occupied by the Village Restaurant, at the corner of O'Neal Lane and George O'Neal Road. Kim Daugherty, an agent with NAI/Latter & Blum who handled the deal, says the owners chose the site because it was ready to go and had good access off Interstate 12. Earhart, Pesnell join Box: Austin Earhart and Branon Pesnell, two of the better known commercial real estate agents in Baton Rouge, have joined the staff of Beau Box Commercial Real Estate. Earhart and Pesnell had been on the staff at NAI/Latter & Blum. Earhart, a native of Baton Rouge, is a past board member of the Commercial Investment Division of the Greater Baton Rouge Association of Realtors. Pesnell is an expert on the local office market and a chairman of the 2007 Trends in Real Estate seminar.
TODAY’S HEADLINES / February 16, 2007 / Baton Rouge Business Report Daily Report - http://www.daily-report.com/
Home prices in Baton Rouge increased by 12.7% in the fourth quarter of 2006 over the year before, according to the National Association of Realtors, putting the area among the top 10 biggest gainers. The median home price in the Capital Region was $173,400 during the last three months of 2006. Baton Rouge was one of the few winners during the quarter, according to figures in The Wall Street Journal. NAR says home prices dropped in about half of all markets, compared with the year before. New Orleans home prices fell by 9.3% in the fourth quarter, with the median home price of $162,100. David Lereah, NAR's chief economist, says the numbers probably reflect the bottom of the current housing slide. Employment remains strong, mortgage rates are low, and Lereah says figures show home prices starting to stabilize during the end of the quarter. The total number of home and condo sales was down 10.1%, to 6.24 million units.
TODAY’S HEADLINES / February 13, 2007 - http://www.businessreport.com/dailyreport.cfm?cid=53
The annual Trends program will be April 19 at BREC's Independence Park Theater. The event, which since 1988 has been a joint operation between the Greater Baton Rouge Association of Realtors and the LSU Real Estate Research Institute, gives local Realtors a chance to find out what's going on in the local economy, as well as giving them a forecast for the upcoming year.
The national housing slump is causing many Realtors to hang up their blazers, reports The Wall Street Journal. While the number of licensed Realtors hit a record of nearly 1.4 million last year, the chief economist for the National Association of Realtors says he expects to see the number drop 6% to 8%, as agents go into other lines of work. The head of one Minneapolis real estate company told the newspaper he thinks the industry has as many as 25% more Realtors than it needs. Read the article here.
Real Estate Weekly readers predict interest rates will rise this year. Thirty-six percent think rates will increase by less than 1% point; 23% think they'll rise by more than 1% point. Twenty percent think rates won't change at all during 2007, while 21% think the Fed will drop rates. More than 400 people participated in the survey.
This week's question: Have you noticed any change locally in the number of Realtors?
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Barringer Crossing is coming: Construction has started on a 24,000-square-foot shopping center in the Barringer Foreman Technology Park on Airline Highway. MIE Properties-LA, which is developing Barringer Crossing, says it will support the needs of the technology park. MIE says it's targeting an array of retailers for the center, including restaurants, business services and medical offices. Downtown condo construction should start in early summer: Richard Preis, who is developing the River Place condominium tower downtown, says problems with rising post-hurricane construction costs have been resolved and he should start firming up reservations for units in the next month or two. "We should start construction in the early summer, with about 18 months to complete the project," Preis says. Sealy sells properties; $35 million deal big: Sealy & Company, a New Orleans-based real estate investment company, has sold assets in five cities, including Baton Rouge, for $138 million in cash. Sealy sold the properties, which include seven buildings with 460,000 square feet of space in the Industriplex area, to the Lightstone Group, one of the largest private owners of real estate in the United States. Mike Falgoust of Sealy & Falgoust Real Estate, who was involved in the sale, says the Baton Rouge properties sold for just under $35 million. "This is one of the biggest deals in Baton Rouge," says Falgoust.
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