FISHERS, IN – Fishers Tech Park is going to see a new tenant in a recently renovated 17,500 sq. ft. office. Netfor, a customer-experience company that specializes in providing value-added services to logistics, government, health care, retail, and other mass-market industries, will be moving into the space due to exponential growth. With concerns in the U.S., Puerto Rico, Canada and Mexico, and handling over one million requests annually, the company will be making the move by the end of 2017.
Netfor’s President, Raquel Richardson stated, “We are experiencing significant growth with our cloud service desk, a team that helps support environments like AWS, Google Cloud and Microsoft’s cloud products. Companies that care about creating the best experience for their products and services truly get Netfor and our expertise to layer in ITIL® practices and knowledge management to consistently and predictably provide answers to their clients so they can scale, perform within agreed upon service levels and get their product to market faster.”
Netfor is expanding in a region that is seeing some of the highest growth in the nation in technology-based jobs, ranking in at fifth place with growth of 27.9%. Governor Holcomb and his administration are pushing hard to put the Hoosier state at the forefront of growth in the technology industry in the U.S.
“Indiana’s economic momentum continues to flourish with growth from companies like Netfor,” said Elaine Bedel, president of the Indiana Economic Development Corporation. “Indiana has established itself as one of the best places in the nation for business, offering companies the tools and resources they need to grow. As we enter our third century, we will continue to ensure Indiana is a magnet for jobs by investing in our workforce and building on our pro-growth business environment.”
The Indiana Economic Development Corporation offered the company over $300,000 in conditional tax credits and another $25,000 if the company meets performance metrics and hires a Hoosier workforce. The company looks to put over 90 more Hoosiers to work by 2021.
Many renters have already been pushed to the limit financially. Another rent hike could force them to move out.
How high can landlords raise the rents at their apartment properties before they begin to lose tenants?
In the current market, many markets have very few apartment vacancies, and face little competition. That would usually be a sign to raise rents. But many renters have already been pushed to the limit financially. Another rent hike could force them to move in with roommates or their families—or simply to miss the next rent payment.
“A growing number of renters are spending less on non-essentials to make up for increasing rents,” says a spokesperson for the government agency Freddie Mac.
Fortunately, the data shows some clear patterns that can help landlords and property managers decide when—and by how much—to raise their rents.
More renters resist rent hikes and luxury renters have lots of choices
As rents rose sharply in recent years, more renters are looking for other options. “A growing number of renters are planning to move because of changes in rent,” says the Freddie Mac spokesperson. That percentage has jumped to 44 percent in March 2017, up from 34 percent the year before, according to a preview of Freddie Mac’s soon-to-be-released 2017 Renter Survey.
Managers of class-A apartment complexes can easily gauge the threat that their residents will move out by checking the local property listings.
These wealthy renters also have the most money to spend on the cost of moving. The renters at professionally-managed class-A+ apartments have an average income of more than $80,000 a year and spend only about 20 percent of that on rent, according to data from RealPage, based on an analysis of leases at properties managed using the RealPageproperty management software system.
Class-B renters have solid incomes and fewer choices
Owners of luxury apartments that are no longer brand new are in a much better position to raise their rents.
The people who live at professionally-managed, class-B properties earn more than $50,000 a year on average and spend less than 24 percent of that on rent, reports RealPage. These residents can generally afford rent increases without breaking the bank.
In addition, “Class-B apartments are typically priced far below newer product—and that’s more true today than ever before,” says Jay Parsons, vice president for MPF Research, a RealPage company, headquartered in Carrollton, Texas.
So property managers can increase their rents sharply and still offer much less expensive units than the new apartments available in their market, even if the new properties come with concessions or free rent.“There is potential for further rent growth, and we do expect class-B to drive overall apartment rent growth in the next few years,” says Parsons.
Renters stressed at professional-managed class-C and class-D buildings
The renters who live at professionally-managed class-C and -D properties are closer to the edge, financially.
These households earn less than $30,000 a year on average and pay roughly 30 percent of that income on their rent, according to data from properties managed with RealPage software. The incomes of these residents probably haven’t changed that much since they qualified to sign a lease and move in.
Class-C and -D property managers typically work hard to keep these residents.“Class-C units tend to sit vacant longer than an A or B unit, and turn costs eat up a bigger share of the revenue stream at a class-C property,” says Parsons. Higher turnover costs combined with a less transient renter base explain why retention rates tend to be highest at class-C properties.
“The risk of increased turnover will limit how much many property managers are willing to push rents,” says Parsons. “Class-C apartments are rarely able to sustain meaningful rent growth.”
Renters on the brink
The challenge is even more severe at the apartment properties that are typically not included in data sets of professionally-managed, “investment-grade” properties.
Millions of renters live at smaller apartment properties or single-family rental houses that don’t check the income or credit reports of potential residents. Many of these renters can’t show enough income to live at properties with professional managers and some may be near the breaking point financially.
There were 11.1 million renter households that paid more than half of their income on rent in 2015, the most recent year for which data is available. That’s an increase of 3.7 million since 2001, though since 2011 the number has stayed at a little over 11 million, according to the State of the Nation’s Housing 2017 report from the Joint Center for Housing Studies at Harvard University.
The owners of smaller rental properties may not have as much information on their residents as the owners of investment-grade properties typically gather. They should be even more careful as they raise their rents.
“If owners choose to aggressively push rents, they will face turnover. If they are overly aggressive, they may face prolonged vacancies, which in turn hurts their yield,” says John Chang, first vice president of research services for brokerage firm Marcus &Millichap.
The 1031 exchanges will likely survive the tax debate, experts say.
It’s anybody’s guess as to what will happen with the federal tax reform plan being scrutinized in our nation’s capital. But experts still have some sense of how the tax proposal could help shape real estate investment strategies for high-net-worth individuals (HNWs).
David Bitner, head of Americas capital markets research at commercial real estate services company Cushman & Wakefield, advises HNW real estate investors to monitor two particular provisions as lawmakers continue formulating the plan: 1031 exchanges and carried interest.
The 1031 exchanges will likely survive the tax debate, Bitner says, although their existence is being threatened by some members of Congress. Doing away with these exchanges—used in an estimated 10 percent to 20 percent of commercial real estate deals largely as a way to defer capital gains taxes—would help finance proposed tax cuts.
“Some very loud, generally well-financed voices” will fight any efforts to take the ax to1031 exchanges, Bitner notes.
Meanwhile, opponents are targeting carried interest, which they complain unfairly lets real estate investors, hedge fund managers and others convert ordinary income into lower-taxed capital gains. Critics will be looking to close this loophole.
Other facets of tax reform that could help or harm HNW real estate investors include:
Reduction of taxes for pass-throughs
Partnerships, S corporations and sole proprietorships would be among the corporate entities that would gain from a proposed drop in the tax rate on pass-through income from a maximum of 39.6 percent (above the current top corporate rate of 35 percent) to a maximum of 25 percent.
“All else being equal, such a substantial reduction in the marginal tax rate will make these businesses and investments considerably more profitable,” says tax policy expert Brad Heim, associate professor at Indiana University’s School of Public and Environmental Affairs.
Repeal of state and local property, sales and income tax deductions on federal tax returns
By one estimate, the bulk of these deductions benefit taxpayers earning at least $100,000 a year, which would include HNW individuals.
Elimination of individual alternative minimum tax (AMT)
The AMT primarily benefits households with incomes of $200,000 to $1 million.The AMT rate is 28 percent, compared with the 39.6 percent rate under the regular income tax; however, the deduction of state and local taxes isn’t available if the AMT rate is used.
Abolishment of estate and generation-skipping taxes
The estate tax, which mostly benefits wealthy Americans, slaps a tax on property whose ownership is transferred after the owner’s death, while the generation-skipping tax applies an extra tax on a transfer of property that skips a generation, according to the Tax Policy Center, a Washington, D.C.-based non-profit think tank.
Broadly speaking, Scott Crowe, chief investment strategist at BNY Mellon’s CenterSquare Investment Management, a real estate asset management firm, says the tax reform framework as it’s laid out now would bode well for investment in asset classes with shorter leasing terms, such as multifamily, office, industrial and hotel. However, the plan wouldn’t aid investment in asset classes with longer lease terms, including healthcare, net lease and retail, given the bond-like nature of these categories, he notes.
Also, if the tax plan puts an end to interest deductibility, lower-yielding core assets would become less attractive than higher-yielding development projects, Crowe adds.
He cautions HNW investors against basing investment decisions only on the rough plan that’s been sketched out for tax reform. All in all, though, HNW investors should welcome the tax cuts being mulled as part of the proposed reform, he says.
“Real estate does well in periods of positive economic growth, and tax cuts will lead to higher levels of economic growth and higher levels of rent and higher real estate values.”
As more details about the tax plan surface, some experts say, it’ll become easier to determine how HNW real estate investors should proceed.
“With so much speculation and many unknowns, it is really almost impossible to provide intelligent advice,” says John Harrison, CEO of the Alternative and Direct Investment Securities Association, a national trade association.
In fact, the advice from Heim, the Indiana professor, is simply for HNW investors to stick to their current strategies, since he highly doubts Congress will approve the existing tax plan or anything similar.
“The tax reform framework contains only a few main provisions, with almost none of the details worked out,” he says. “In tax reform, the devil is always in the details—whose taxes will increase in order to make the code simpler and more efficient?”
Whatever the specifics of the plan are, Harrison doesn’t expect passage of any sort of tax legislation until early 2018.
“Considering the current political environment and where the process is today, it appears that achieving a truly broad-based tax reform package seems unlikely, with the higher probability being a more narrow tax cut program emerging,” he says.
What does end up emerging shouldn’t greatly affect HNW real estate investors, according to Tim Speiss, partner at New York-based accounting firm EisnerAmper LLP.
“So far, for the real estate industry, the proposed tax law changes in 2017 are minor compared to those imposed under the Tax Reform Act of 1986, which had a high impact on real estate operations and investments,” he says.
INDIANAPOLIS – As the weather turns colder, and the city prepares for the upcoming Winter and accompanying holidays, the former Shelby Bowl Building is preparing to welcome Books and Brews thanks to the efforts of the people and programs at the University of Indianapolis. University President, Robert Manuel, credits the relationship with the community as being crucial to the success of the project and development in the area.
“The University takes immense pride in being an anchor for south Indianapolis, and we understand that our growth and success would not be possible without the support and partnership of our community,” said Manuel, “As we look to expand our campus life to our growing student population, Books & Brews stands out as a logical option to bring additional retailers to our campus and surrounding neighborhoods.”
With construction beginning this month, the University-based developer Oakbridge Properties, is excited to see Books and Brews, a company that prides itself as, “A place for people without a place, where all are appreciated and encouraged to be themselves”, step in to the former Shelby Bowl location. The project is the culmination of a long search for a company that the University felt was a right fit for the development. The move also helps support the Vision 2030 plan, a strategy for mutual growth between the University and surrounding community which includes more than $50 million in capital investment in the area.
Erik Harvey, a faculty member at the University of Indianapolis who teaches a Master’s Program in real estate for the college, thought that the project was a boon for the community, and that the university was taking a strong position in leading the charge to improve the area. “The Books and Brew project in combination with the new student housing project result from the hard work that have gone into the IUndy master plan and the University Heights Quality of Life Plan. It’s wonderful to see the old Shelby Bowl, a site that has been vacant for a decade or more, to find a use supported by the growth of UIndy. The growth the school is experiencing continues to spur new development in this area of the south side of Indianapolis. UIndy student population has grown, and many of those students are choosing to live on campus.”
For the full story in the Southside Times visit: https://ss-times.com/university-indianapolis-southside-development/
INDIANAPOLIS – Across the nation cities of all sizes are seeing a rise in challenges with crumbling infrastructure and deteriorating properties within their borders. While some are directing their finances toward other concerns, or just don’t have the financing to address such problems, the city of Indianapolis is taking major steps in revitalizing its neighborhoods.
Mayor Joe Hogsett, when speaking about the money that would go to the Monon16 area (in the Kennedy King neighborhood) said, “When I was elected Mayor, I promised to leverage the success of Downtown back into our neighborhoods. As a first-of-its-kind investment strategy for Indianapolis, Lift Indy allows us to concentrate significant funding toward addressing neighborhood challenges and sustaining healthy communities.”
Lift Indy is a progressive plan that looks to invest money from the Reinvestment Fund in a new neighborhood each year using data provided from the fund that shows positive targeted growth with multi-year funding. Out of a field of nine hopefuls, Monon16 was this year’s choice.
Developers in the area see the benefit to the program and the impact of the growth-based strategy.
“The city’s investment into a comprehensive community development will leave a legacy of inclusiveness in the Monon16 area that continues well beyond the Lift Indy program,” said Steven Meyer from the King Park Development Corporation.
To see the full story please follow the link:
INDIANAPOLIS – According to an IBJ Article, questions about the per unit rents at 360 Market Square were answered this week when developer, Flaherty & Collins Properties, announced pricing for the 300-unit project at 360 E. Market St. The rates are expected to see levels of $2000 and above, which sits within existing rates in the downtown area.
“The rates compare favorably with other new downtown apartment projects” said Hannah Ott, a senior marketing director of Tikijian Associates apartment brokerage, “really, they don’t seem out of line, if you compare them against Axis at Block 400 (Flaherty), Mosaic at Artistry (Millhaus Development LLC), and Slate (Deylen Realty) which are some that ask $2,000-plus monthly rental rates.”
Associates directly involved with the project aren’t worried about finding interested parties for the living spaces at 360. Jim Crossin, Vice President of Development stated, “At 360 Market, Flaherty & Collins is experiencing strong interest, and to date, has compiled a list of potential renters from 1, 650 prospects.”
Location, cost, and amenities such as a rooftop terrace, pet-grooming spa, grill and lounge deck on the fifth-level, and many others are attracting such interest.
See the full article with costs and other information at the Indianapolis Business Journal.
Per JLL’s most recent report on Indianapolis: “Construction continues to be the story of 2017. Completed construction more than doubled since last quarter to over five million square feet. Three million square feet came online in the third quarter alone! With six million square feet still under construction, it’s not a matter of if the record will fall, but rather by how much. Once all this construction comes online, 12.0 percent of Indianapolis’ industrial stock will have delivered in the past four years.”
Contact Mike Cagna or Brianna Marshall at JLL Indianapolis for more info.
Developers are now planning to build even more new hotel rooms than last year.
The hotel business keeps reaching new heights.
“The continued strength in room demand surprised on the upside,” says Jan Freitag, senior vice president of lodging insights for data firm STR.
Because of that strong demand, room rates continue to rise and more hotel rooms have been occupied over the last year than ever, filling up the new hotel properties that developers continue to open in cities across the country.
Developers are now planning to build even more new hotel rooms than last year, already a big year for new construction.
“We do not see a slowdown in the U.S. pipeline of hotel properties in development,” says Freitag. The number of new hotel rooms now planned totaled 590,000 in September. That’s up 9 percent compared to the year before. The total number of hotel rooms under construction rose to 192,000, up 13 percent compared to the year before, according to STR.
However, the pipeline of new hotels in development and pre-development is growing more slowly than during previous years.
Even with all the new construction, developers are not building as many new hotel rooms during this boom as they did during prior booms.
“The amount of supply set to deliver over the next four quarters is relatively low compared to most previous cycles,” says Jeff Myers, managing consultant for CoStar Portfolio Strategy. The latest surge in development is likely to increase the inventory of hotel rooms by 2.1 percent over the next 12 months. That’s less than half of the 4.3 percent growth that happened during the busiest 12 months in the mid-1990s.
“I am still surprised that the amount of construction taking place is relatively modest, given how strong fundamentals are,” says Myers.
Demand for hotel rooms keeps growing
The demand for hotel rooms continues to grow, easily soaking up the flood of new rooms. The percentage of occupied rooms averaged 72.4 percent over the 12 months that ended in the second quarter of 2017, according to CoStar.
“Room demand is at an all-time high,” says Freitag. “The U.S hotel industry—through August—has sold more rooms than ever before.” Demand is expected to continue to grow in 2017 and 2018. That’s because the U.S. economy is still relatively strong. “As long as the U.S. gross domestic product is in the 2-percent range, we do not see growth slowing down,” Freitag notes.
Healthy corporate profits continue to create demand for business travel. And because unemployment is relatively low and the purchasing power of many families is strong, consumers continue to travel for leisure. The damage created by Hurricanes Harvey and Irma also inflated the demand for hotel rooms in Texas and Florida, as people whose homes were damaged needed to find other places to stay.
Markets that outperform
Hotel properties are doing especially well in a few smaller cities such as Denver; Tampa, Fla.; Charlotte, N.C.; Phoenix and Portland, Ore.
“These are places in which demand has typically handily outpaced new construction during the recovery and occupancies are at or near record highs,” says Myers.
For example, the percentage of occupied hotel rooms in Denver has typically averaged around 65 percent over most 12-month periods. The 12-month occupancy rate in Denver is now at over 80 percent, according to CoStar.
Guest Column by Brian Cyphers, Colliers – DFW The internet has permanently transformed the landscape of the retail industry, and investing in retail commercial real estate assets will never be the same. But despite the headlines you might be reading, it’s not all doom and gloom. In fact, capitalization rates for all retail properties in the U.S. dropped from 8% in 2010 to 6.5% in Q1 2017 — lower than rates during the 2006–2008 boom.
While technology will continue to influence consumers’ attitudes and expectations of how they experience retail, one opportunity that will persist for investors seeking steady ROI is the neighborhood shopping center.
Neighborhood shopping centers often include a combination of national credit tenants (NCT) — retail brands that operate on a national level — and local credit tenants (LCT). There is a perception that NCT are more dependable than LCT and yet it’s not hard to find examples such as Blockbuster, Best Buy and Radio Shack that are struggling due to advances in technology and e-commerce.
With the recent closures of several NCT across the country, many investors are looking for shopping center assets with the right tenant mix of both name-brand and local operators.
UNDERSTANDING THE ROLES OF NCT AND LCT IN A SHOPPING CENTER
Neighborhood shopping centers with strong LCT can prove to be as dependable as NCT due to their customer loyalty, unique services and neighborhood convenience. Often, LCT can offset drops in retail center occupancy when mixed with NCT. This is because an NCT’s decision to close certain locations is typically dictated by analytics derived from the highest-performing locations across hundreds of national stores.
By comparison, LCT typically own their businesses and their livelihoods depend on their success and the relationships they build with customers in the communities they serve. A shopping center with a healthy number of local tenants with steady customer bases can be less dependent on national tenants to drive business, which can lead to more stable operating expenses and cap rates.
One interesting example of the appeal of LCT is Warren Buffett’s recent purchase of a 9.8% stake in Store Capital Corp., a single-tenant REIT that primarily leases to mom-and-pop stores. This REIT tends to invest in retailers deemed “internet resistant” or businesses that offer a service, experience or goods that are not found or easily recreated on the internet. When you think of “experience-based business” you might think of entertainment-focused concepts like Pinstack Bowl or TopGolf, but this category can also include nail salons, hair salons, health and wellness businesses, restaurants, dry cleaners, fitness and medical offices.
STRIKING THE OPTIMAL BALANCE
Every shopping center has a unique story, and the ability to craft and present each story is the best way to evaluate tenants, assess their impact on the surrounding community and ultimately decide on the value of each asset.
For the income-oriented investor, well-located neighborhood retail shopping centers that have approximately 25,000–100,000 square feet of LCT can be an effective hedge against the risks of NCT closures and can offer attractive yields with comparable income durability to other retail investments like REITs, power centers and malls.
While there is no guarantee of longevity with any tenant, incorporating the right mix of national tenants and established local businesses with strong track records can give an investor a feeling of confidence when making retail acquisitions.
As a Vice President of Retail Services in Dallas-Fort Worth, Brian Cyphers works with commercial real estate investors throughout the state of Texas.
It should come as no surprise to the residents of Fishers, IN, that it is the best place in the US to live. It has, after all, been transforming itself for most of this decade. Fishers came in at number 12 when Carmel won the award in 2012, the year that saw Launch Fishers open.
The study, completed by Money Magazine, looked at eight categories: cost of living, the economy, education, housing, crime, convenience, cultural and recreational amenities, and overall sense of pleasantness. While this may be news to much of the rest of the country, the growth in Fishers has not been lost on the commercial real estate community.
“Mayor Fadness and his team have done an excellent job of being proactive and pro-development,” says Adam Broderick, Managing Director of JLL Indianapolis. “They have an outstanding working relationship with the real estate community and deliver what they promise. Fishers has risen to the top of the list as a progressive city because they have focused on providing top-notch amenities and connectivity to residents and businesses.”
Don’t count out Indianapolis, though. It was recently named the number two city in the country for jobs by Indeed.com. Also, the two cities are teaming up to pursue Amazons HQII project. In fact, multiple sources report the two Mayors working hand in hand to lure the tech giant.