Paramount Represents Seller in Plymouth Investment Sales Transaction
Fred Hedberg, Principal of Paramount Real Estate Corp was engaged in November 2020 by SJH Real Estate, a long-time client, to sell a NNN leased property it owned in Plymouth Minnesota. The owner of SJH Real Estate had recently concluded the sale of part of his business to SiteOne Landscape Supply LLC. SiteOne Landscape Supply LLC is owned by a publicly traded company that provides wholesale goods for green industry professionals. SiteOne has a market cap of $6 billion with over 500 facilities throughout the United States and Canada. As part of the purchase, SiteOne entered into a 10-year NNN lease with two-5 year options to extend for the property that was used to operate the business unit it had purchased. During negotiations, Fred advised SJH on the best way to structure the lease. He also advised on ways to maximize the value of the real estate and make it saleable in the future.
The property, located at 1205 Nathan Lane in Plymouth consists of 8.15 acres and a 17,580 square foot showroom/warehouse building. The property’s zoning allows for outside storage. Finding a property with zoning that allows for outside storage within the I-494/I-694 loop of this size is very rare and in high demand. The zoning, financial strength of the tenant, and the long term lease made this property very attractive to investors.
Paramount Real Estate Corp/TCN Worldwide started marketing the property For Sale on November 12, 2020. Fred contacted several local investment groups he thought might have an interest in this property. He received eight offers within two weeks, the majority of which were at full asking price or above.
Selecting a Buyer
The top five buyers were asked to submit their best and final offers. Three of the five buyers were at the same price or very close to the same price. The seller decided it would be in his best interest to close on a sale by December 31, 2020. Paramount advised the top three buyers to make one more final offer. They were also asked to provide evidence they could close by December 31. Upon careful review of the final offers and discussions with each of the buyers, one was selected.
Fred and the Seller selected a buyer they felt would have the best ability to close on the sale by year end. Both parties signed the purchase agreement on December 8, 2020 with a short due diligence period. All parties worked together to get an appraisal and environmental study completed in less than three weeks. Christmas even fell within that three weeks. The sale closed on December 30, 2020 and the property sold for $500,000 over asking price.
With a time from listing to close of less than seven weeks including holidays, this was an extremely fast transaction. As the real estate world gets more complex, most transactions are taking longer. This sale is an example of how complex real estate transactions can still be completed in a short time frame if all parties work together towards a common goal. It also demonstrates the strength of the Twin Cities investment sales market and investors’ appetite for good real estate with strong credit tenants and long-term net leases.
Written by: Fred Hedberg, Principal | Paramount Real Estate Corp | TCN Worldwide
Paramount Represents Seller in Plymouth Investment Sales Transaction
INDUSTRIAL MARKET UPDATE: YEAR END 2020
2020 was a challenging year to say the least. COVID-19 had a significant impact on the economy, everyone’s daily lives, and of course the commercial real estate industry. Unemployment has still not recovered from the impact of the pandemic. It remains over 3% higher than the previous year on a national level. At year-end, unemployment was 6.7%. Minnesota’s unemployment rate at year-end 2020 was 4.4%, up from 3.3% at year-end 2019.
Industrial Absorption Remains Strong
The Industrial real estate market demonstrated surprising strength after a significant pause during Q2 and Q3 of 2020. Net absorption of available industrial space for Q4 totaled a robust 1.24 million square feet and 2.48 million square feet (Multi & Single Tenant) for the entire year. In comparison, total net absorption for Q4 2019 was 728,962 square feet and a robust 3.186 million square feet for all of 2019. This shows there is a decreasing supply of industrial real estate in the current market.
Industrial Category Stats
In both 2019 and 2020, Warehouse Distribution space (buildings with 24’ clear height or higher) outperformed Flex/R&D and Office Warehouse net absorption; totaling more than both other categories combined. Net absorption for Warehouse Distribution space totaled 1.973 million square feet in 2020 and 1.769 million square feet in 2019. Clearly Warehouse Distribution has been the best performing industrial product type. Overall, the industrial vacancy rate Year End for 2020 stood at 4.9%. Warehouse Distribution space stood at 4.5% and Office Warehouse vacancy rates were 0.2% lower than Warehouse Distribution space. When accounting for the 3.68 million square feet of new speculative development currently under construction, most of which is Warehouse Distribution space, this additional square footage has little impact on vacancy rates.
The weakest portion of the industrial market continues to be the Flex/R&D (Office Showroom) product. COVID-19 has exacerbated an already weak 2019 performance. YTD Net Absorption for Flex/R&D was a -182,645 square feet and has the highest vacancy rate at 9.5%.
Factors Driving Demand
Warehouse Distribution product will continue to perform better than any other segment of the market in 2021. Demand is driven by a number of variables that appear will only increase the need for more and higher quality high bay space going forward. Tenants are willing to pay new construction rates to benefit from operational efficiencies of new construction, particularly for in-fill locations in urban areas. The demand from 3PL (Third Party Logistics) companies and Last Mile Home delivery companies will increase. This will be a direct result of more consumer purchases online. In addition, investor demand to acquire this product type is stronger than ever. Investors are driven by strong property-level fundamentals, relative liquidity, and a broadening of their appetite due to the global yield environment.
While COVID-19 has negatively impacted the market, this high demand and low supply in the industrial real estate market has resulted in property sales and lease rates to increase over the last year. We expect this trend to continue into and throughout 2021.
Written By: Phil Simonet, Principal | Industrial Sales & Leasing
Q4 2020 Industrial Market Update
OFFICE MARKET UPDATE: YEAR END 2020
Most everyone will agree that 2020 was an exhausting year. Challenges brought on by the pandemic, social unrest and a polarized political environment kept the mood just below tolerable. Working from home and state mandates have left streets empty, restaurants closed and frustratingly vaccinations are just not happening as expected. Not surprisingly, state unemployment numbers rose. Reaching 3.9% up from 2.7% at year-end 2019 and business pushed decision making out to the future.
Q4 office leasing data does not bring too many surprises as overall absorption for the quarter came in at a negative 203,552 across all property types in all submarkets. The only winner appears to be the Northwest submarket. It experienced 4th quarter positive absorption of nearly 300,000 square feet. Overall vacancy rates have increased by over a full percentage point year over year. They came in at 13% for all properties and 17.2% in multi-tenant properties, nearly 2% over year end 2019.
What about Rental Rates?
While vacancies are up and the market still struggles, rental rates have not changed. Landlords are likely willing to incentivize new deals with free rent and larger allowances but for now aren’t moving off their quoted rental rates. Overall quoted rental rates are averaging $24.81 per square foot gross, slightly higher than 2019.
Total sales volume for Q3 surpassed 1.4 million square feet. Low interest rates continue to drive sales but inventory is low and investors have few options readily available. Working from home continues and the expectation is that employees will start returning to the office late in 2021. In the meantime, landlords are working to make their properties cleaner with bi-polar ionization and touchless doors/elevators/restrooms. Rearranging office layouts to meet 6’ social distancing recommendations is the primary tool being utilized and we all hope vaccination levels ramp up and the local economy starts humming again.
Written By: Nancy Powell, Vice President | Office Sales & Leasing
IOT? WHAT IS IT???
The Internet of Things, or IoT, is a little-known concept becoming increasingly more important in everyone’s daily lives. A technical definition is: cyber-physical systems incorporating internet connectivity with the ability to sense and react to the world in innovative and highly useful ways. In practical terms, you can think of IoT as the fine tuning of efficiency in the supply chain using technology. For example, IoT is the Amazon Echo you use to control the temperature in your home. It’s the smart glasses your warehouse workers wear to guide them in filling customer orders. That’s right. There are glasses worn by humans, that have visual and verbal cues provided by a connected inventory and sales system overlaid on real world pick locations. Think virtual reality glasses, with the actual warehouse racking in full view. Glasses that guide them around the warehouse to pick and fill orders.
Businesses have been searching for ways to acquire more data and use it effectively to reduce costs and increase efficiency. Until recently, the processors needs were too large, costly, and inefficient to scale up. Three new developments changed this:
First, RFID tags – Radio Frequency Identification tags, which are low-power, inexpensive chips that can communicate wirelessly. These allow manufacturers to track inventory location. As well as monitor information such as manufacturing date, expiration date, and warranty periods.
Second, the increasing availability of broadband internet and cellular and wireless networking. These systems provide digital infrastructure for IoT to be more broadly used in manufacturing.
Third, the adoption of IPv6, (internet protocol version 6), which, should provide enough IP addresses for every device the world is ever likely to need.
Now the stage is set to dramatically increase the effectiveness of IoT in at least three distinct areas:
(1) PRODUCTION AND FIELD OPERATIONS
IoT solutions can be used to monitor machine utilization such as run time, operating speed, product output, repair needs, and quality control. The data is gathered in real time then aggregated in the cloud. It is transmitted to shop floor workers’ user interface apps making immediate adjustments. These systems can monitor inventory of raw material on the shop floor and automatically order parts to keep production running.
(2) SUPPLY CHAIN MANAGEMENT
IoT supply chain management solutions monitor the location, status, and condition of every object at any segment of the supply chain (be it an individual inventory item on a warehouse shelf or a truck delivering supplies). For instance, with the traditional supply chain management methods, manufacturers could only retrieve general data such as availability of a part. With IoT in the manufacturing and distribution supply chain it changes everything. Businesses can get information such as the location, condition, shelf life, quality, AND availability of each item.
(3) CONTROL OF OUTSOURCED OPERATIONS
When a business builds or buys a facility in a different city, state, or country, it still needs to maintain quality and production standards. IoT-driven utilization monitoring solutions help industrial companies keep production and distribution on track. They do so by monitoring real-time equipment efficiency metrics without direct access. Smart products located in one city can access and assess real time data in another city. This allows companies to make changes to and keep the distribution process moving effectively and efficiently.
IoT may be the new hot technology buzzword, but there are challenges. Lack of qualified employees who can use it, cost implications, and data privacy concerns are causing businesses to carefully measure the costs and benefits of IoT adoption. In most cases, businesses are taking a step-by-step approach. This ensures they are implementing processes that match company culture and create efficiencies. So, IoT is not yet self-aware, but beware, you will be hearing a lot more about it in the years to come.
Written By: John Young, CCIM
Keystone Community Services Purchases Building
St. Paul will have a new food shelf specifically designed to meet the needs of local residents. John Young, Vice President with Paramount Real Estate, along with a team including NTH and Fox Advancement, represented Keystone Community Services in purchasing a building on University Avenue for their new community food site. This 20,000 square foot facility will be located just steps from the Green Line’s Fairview Avenue Station. In addition to public transit, Keystone’s participants and volunteers will have access to both off and on-street parking, which is rare along the Green Line.
Keystone’s mission is to “strengthen the capacity of individuals and families to improve their quality of life”. They are an 80+-year-old large multi-service nonprofit organization that provides human services in the areas of basic needs, afterschool programs, youth employment programs, and senior services. Food insecurity is at an all-time high due to the slower economy and Covid-19 impacts. Keystone is filling these needs with existing and new food programs for residents of Ramsey County. Therefore, the new site will provide expanded resources for our community. A capital campaign is underway to raise money for renovating and equipping the site. Learn more at www.keystoneservices.org.
COST SAVINGS WITH LED LIGHTING
DID YOU KNOW?
LED lighting is up to 80% more efficient than traditional lighting such as fluorescent and incandescent lights? 95% of the energy in LEDs is converted into light and only 5% is wasted as heat. Compared that to fluorescent lights which convert 95% of energy to heat and only 5% into light! LED lights also draw much less power than traditional lighting; a typical 84-watt fluorescent can be replaced by a 36-watt LED to give the same level of light. Less energy use reduces the demand from power plants and decreases greenhouse gas emissions. See photo on the right for a side by side comparison.
CODES & CITY REQUIREMENTS
It is important to know the exterior lighting codes and requirements in your city. Cities that realize the importance of this simple step to energy savings are being proactive by outlining specifics on what can be used. Color and output/brightness are two of the biggest factors.
City of Bloomington Requirements: https://www.bloomingtonmn.gov/sites/default/files/52u_exterior_light.pdf
CONSIDER ALL THE FACTORS
Do we need to replace the entire fixture or just the “bulb”? There are many companies out there that will provide you with a free lighting audit showing you the big savings of re-lamping fixtures and all. Make sure you are considering ALL the factors:
Do we have the correct existing fixtures/watts?
Are the usage hours correct/close to your actual facilities hours?
Can you retrofit your current fixtures?
Plug and Play Ballasted LED – swaps out existing linear fluorescent T8 or T5 LED tubes.
Direct Wire LED Tubes– no ballast maintenance needed.
Plug and Play Ballast Bypass – Upgrade by simply changing out the lamp. No electrician cost for the rewiring of the fixture. No voltage issues at the socket, and reduced overall maintenance.
There’s a lot to consider before changing out lighting. Make sure you spend the time finding the right fit for your facility. Some cities may require consumers to re-lamp outdoor fixtures to LED over the next few years. To the contrary, it may be surprising to hear that some cities, Excelsior, for example, prohibits them. With the reduction in energy it seems irresponsible not to consider moving to LED.
For More Information About
Property Management, Contact:
Lisa Borene | Vice President
Property Management Division
Paramount Real Estate Corp Partners with
TCN Worldwide Real Estate Services
Paramount is proud to continue our partnership with TCN Worldwide Real Estate Services for the 12th year. TCN Worldwide is an alliance of top independent brokerage firms serving more than 200 markets. Work with a global leader while accessing the unique knowledge that only local offices can provide.
TCN Worldwide, a consortium of independent commercial real estate firms, provides complete integrated real estate solutions locally and internationally. An extensive range of real estate services coupled with a personal commitment to exceed expectations is what allows TCN Worldwide to be a leader in this competitive industry. Comprised of leading independent brokerage firms, serving more than 200 markets globally. TCN Worldwide combines an entrepreneurial approach with years of local experience. Around the globe, across all property types and service groups, TCN Worldwide’s more than 1,500 brokers and salespeople have a well-earned reputation for providing straightforward expert advice.
Let TCN Worldwide Work For You… TCN Worldwide affiliates are able to meet their clients’ real estate needs globally by utilizing local expertise while retaining direct control and responsibility, providing a single point of contact. We offer comprehensive commercial real estate transaction, management and consulting services, all provided with the highest level of corporate accountability and entrepreneurial commitment.
TCN Worldwide allows you to communicate directly with a business owner and entrepreneur. We offer more than sound real estate advice. We offer a partner to share your vision. When you work with TCN Worldwide you’ll be working with someone who shares your sense of ownership and accountability.
Ranked among Most Powerful Brokerage Firms – Commercial Property Executive
A Best of The Best: Brokerage Firm – National Real Estate Investor
One of the Industry’s Most Recognizable Brands – The Lipsey Co., Top 25 CRE Brands Survey
EXPECTATIONS YOU SHOULD HAVE WHEN
HIRING A REAL ESTATE BROKER
When a firm engages the services of a licensed real estate broker, what should be the expectation in terms of service and performance? There are many areas to note, but I will mention three that I believe are most important.
Enthusiasm and hard work can make up for many deficiencies. There is no question that those two qualities are critical to any successful real estate assignment. However, people just beginning their careers in the brokerage business don’t start by tackling the most difficult deals. Standard practice in the industry is for a young person to be partnered with, and mentored by, a more seasoned veteran. There is much at stake in any real estate deal. Understanding how to structure the proper deal, familiarity with existing market conditions, editing lease language, and negotiating with area landlords generally is earned by riding the coat tails of a more experienced broker and on-the-job experience. Most of what I have learned over the years has come through time spent with experienced and competent landlords, attorneys and contractors . . . and making plenty of mistakes!!!
Absolutely essential! When any firm, large or small, places its trust in an individual broker, particularly with what’s at stake in a real estate deal, the broker must present an “open book” of himself and the deals he presents to the client. If a landlord is offering a special broker trip or bonus for concluding a deal, the client needs to know. If the broker represents a building they are recommending to the client, the client needs to know. A perceived conflict is sometimes worse than an actual conflict. In every instance, without exception, the broker must do what is best for the client. There should be total transparency from start to finish.
The broker must provide value in every step of the process. If there is no value, what benefit is there to the client? Value comes in many forms and weighted differently by various firms. However, successful firms are focused firms, and taking the time required to complete a real estate deal can easily eat up lots of time . . . and money!!! Expecting a full-time employee with no experience or knowledge to represent the firm’s best interests in the marketplace is foolish. Landlords know their business, and you know yours; and someone needs to be an advocate for the client.
Looking For A Great Real Estate Broker? Look No Further!!!
Fred Hedberg, CCIM, SIOR, Principal
Phil Simonet, Principal
John Young, CCIM, Vice President
Joseph Schultz, Associate
Jack Buttenhoff, Associate
Nancy Powell, Vice President
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THE ECONOMIC OUTLOOK FOR CRE INVESTMENTS WITH DR. MARK DOTZOUR
We are proud to present this special TCN Worldwide webinar featuring Dr. Mark Dotzour. He is a frequent participant at TCN conferences and one of the truly ‘entertaining economists’ to provide an economic outlook and forecast for TCN members as well as their clients, prospects, friends, and family.
Join TCN Worldwide and Dr. Mark Dotzour as he discusses:
The outlook for job growth in the US.
Will the recovery be quick or prolonged?
What is the outlook for inflation in 2021 and beyond?
The outlook for borrowing rates
What is the outlook for cap rates?
What is the outlook for investor demand for US commercial real estate?
SPECIAL GUEST SPEAKER:
Dr. Mark G. Dotzour (CRE Economist)
Former Chief Economist and Director of Research at Texas A & M University
Dr. Mark G. Dotzour is a real estate economist who served for 18 years as Chief Economist of the Real Estate Center at Texas A&M University in College Station. He has given more than 1,450 presentations to more than 250,000 people. He has written over 90 articles for magazines and journals.
Dr. Dotzour makes complex economic issues easily understandable. Above all, Mark’s goal is to provide his audience with a “tool kit” of useful information that will help them make good business decisions. Ultimately, helping their families, their clients, and their company.
His research findings have appeared in the Wall Street Journal, USA Today, Money Magazine and Business Week. Similarly, his clients include banks, private equity firms, real estate investment trusts, construction firms, engineering companies, wealth managers, private foundations, and commercial and residential brokerage firms. In addition, he has made presentations to local and national trade associations all over America.
Special thanks to TCN Worldwide for hosting this webinar.
Questions? Call Paramount Real Estate Corporation.
FOCUS ON WHAT’S IMPORTANT
Companies searching for new office or industrial space in today’s soft office market, or conversely today’s healthy industrial market and listing brokers and landlords are guilty of this as well… They often tend to focus almost exclusively on rental rate. In other words, the lowest price should be enough to positively influence a tenant’s decision to lease space in a building. The result? We’re “commoditizing” commercial space alternatives while losing the focus on what is right and best for the tenant.
SPACE ISSUES BEYOND PRICE
Let me be the first to say that economics are always important and competing buildings must be reasonably similar. However, economics are not the most important element when it comes to making a real estate decision. I have often told clients, “What difference does it make if the landlord provides the space at no cost, if the space is not functional and does not effectively work for you?” Retail clients generally seem to have a better handle on weighing the intangibles when they make space decisions. They understand that there are issues far more important than price. Issues such as exposure, vehicle traffic counts, ease of access, parking and neighboring tenants. Issues that will impact their long‐term success more than a marginal reduction in their base rental rate.
TOTAL COST SOLUTION
So many components go into a good real estate decision, and price is only one of those components. Tenants need to look at a “total cost solution” rather than just a “rental rate” solution. The latter is the proverbial tail wagging the dog kind of decision, and decisions like that never work well over the long term. That’s why establishing a preliminary budget is critical to the process. So that companies don’t waste time looking at what they can’t afford. Companies often do themselves a disservice by discounting the importance that a well thought out facilities plan plays in their long‐term success. Space, like any other component of a firm’s business plan, should function strategically. Ultimately, ensuring long‐term success for the firm. The list of items that ensure long‐term success generally relegates price to the lower tier of importance.
RANKING CRITICAL ISSUES
Companies must address, evaluate and rank the importance of critical issues. These may include parking availability, access, visibility, building efficiency, flexibility to expand and contract, on‐site or close‐by amenities, public transportation availability, security, sustainability issues, building management, landlord financial viability ‐‐‐ and, obviously, the financial structure. Whether internally generated or broker generated, tenants must understand the total cost of the deal. One deal may provide more dollars for tenant improvements; another deal may offer less tenant improvement dollars but more free rent. Yet another may offer to graduate or step the rent and pay moving costs. And in the end, a simple consideration like ease of client access or proximity to public transportation may trump the lower base rent deal.
Guard against making an impulsive, “head in the sand” facility evaluation. Select a member of your team and a competent real estate broker who will ensure that your firm makes a well thought out space decision, not a decision based on a single issue like rental rate. Make sure you have completed the proper due diligence before signing on the bottom line!
NEED HELP FINDING THE RIGHT SPACE?
Reach out to one of our
TRUSTED. DEDICATED. EXPERIENCED.
brokers at Paramount Real Estate Corporation:
Industrial: Fred Hedberg, CCIM, SIOR, Principal
Phil Simonet, Principal
John Young, CCIM, Vice President
Joseph Schultz, Associate
Jack Buttenhoff, Associate
Office: Nancy Powell, Vice President