Global Viewpoints

Forecast for EMEA Hotels Investment Market Optimistic for 2010

Edited: Lisa Benston
Source: Jones Lang LaSalle Hotels

The first half of 2010 has demonstrated that the EMEA hotel investment market is starting to pick up, with growth expected to accelerate even more in the second half of 2010 according to Jones Lang LaSalle Hotels. Transaction volume rose marginally to €1.6 billion at the end of H1 2010, representing a 6% year on year increase. There is strong sense that the latter part of 2010 will witness stronger investment activity, with expectations that the second half of 2010 could see transaction volumes double on H1 levels.

As anticipated by Jones Lang LaSalle Hotels EMEA forecast at the start of the year, the UK has been the most active market in 2010, with over €300 million of investment transacted which represents a 19% market share compared to 14% in 2009. Last year’s leader, France, is not far behind with just under €270 million invested.

Hotel operators, institutional investors and investment funds/private equity continue to display a strong appetite for investment, and together accounted for nearly 65% of all hotel investment in EMEA in H1 2010. This indicates that sophisticated investors believe it is a good time to buy and are enjoying reduced competition for assets, as many of the high leverage buyers have fallen out of the market.

Domestic capital remains the dominant source of investment accounting for 47% of total investment, with investors still focused on familiar territory. Investment from European sources has risen significantly from 18% to 34%, while investment from the USA continues to be weak. Middle Eastern interest remained relatively strong with a growing market share during H1 2010 moving to 14% from 8% in 2009; however there has been no significant investment from Asian buyers despite strong interest from this region, in particular South Asia. These types of buyers tend to look for good quality assets in London and Paris at discounted prices, which are hard to find in today’s market as buyers outnumber sellers by a considerable margin.

Mark Wynne Smith, CEO for Europe, Middle East and Africa at Jones Lang LaSalle Hotels commented: “The dynamics of the market have changed and deals are taking longer to complete, with both buyer and seller approaching negotiations with caution. However, we are starting to see sellers acknowledge that buyers’ pricing is acceptable given the current economic climate, which is likely to drive increased deal volume as the year progresses.”

Wynne Smith also notes the stock being marketed is of a substantial volume and that there are more deals in the pipeline than there were in H1 2009, many of which will materialise over the coming months. This will be supported by improved access to credit from lenders and increased certainty about underwriting projects.

Wynne Smith concludes: “The market conditions experienced over the first half of 2010 are reminiscent of what we saw in 2002. The second half of 2002 saw a doubling of transaction volume and I anticipate that we will see a similar outcome over the remainder of this year”.

Centro Announces $659M of New Financing and $2.3B Debt Extension

Edited: Lisa Benston
Source: Centro NP LLC

Centro NP LLC (the "Company") today announced a series of financing transactions within the Company, its parent Super LLC ("Super") and its joint venture Centro NP Residual Holding LLC ("Residual") that improves the debt maturity profiles across all three entities.

The Company has secured $659.0 million of term loans which mature in ten years and carry a fixed interest rate of 6.75 percent. These loans are secured by 76 properties owned by the Company. Proceeds from these loans will be utilized to repay approximately $469.3 million of Centro NP LLC debt which had been scheduled to mature on or before December 31, 2010 including:

• $350.0 million ($305.6 million outstanding) secured revolving credit facility
• $108.7 million secured term loan
• $55.0 million secured term loan

A portion of the remaining proceeds from the loans will be used to repay a $103.4 million REMIC loan due June 1, 2028, which currently has an effective interest rate of 11.7 percent, with the remainder to be used to fund closing costs and address future debt maturities within the Company.

In addition, Super has secured a one-year extension from December 31, 2010 to December 31, 2011 for $2.3 billion of debt within Super, including its $1.7 billion bridge term loan and $580 million of additional outstanding indebtedness within Residual comprised of:

• $370 million ($352.5 million outstanding) credit facility
• $122.5 million secured term loan
• $105.0 million Preston Ridge credit facility

There is no change in credit margins on any of the extended facilities as a result of this extension.

"We are very pleased to have been able to secure the largest single borrower retail financing this year," commented Michael Carroll, Chief Executive Officer of Centro Properties Group US. "These transactions are critical steps in positioning Super LLC within Centro Properties Group's global restructuring of its US and Australian platforms and are indicative of the strong support of our US lending group," he added.

Commercial property prices to rise further in Hong Kong and mainland China

Edited: Lisa Benston
Source: Royal Institute of Chartered Surveyors

The property market in Hong Kong and China has continued to strengthen further into Q3 says the recently published RICS Global Property Survey. Occupier demand is rising in Hong Kong while China rose at a faster pace for the fifth consecutive quarter. Significantly, surveyors are optimistic on rental increases in Hong Kong with rental expectations to rise at a slightly faster pace for the fourth consecutive quarter. Having stabilized in investment market in Q1, growth in transaction activity moved higher again in Hong Kong and at the fastest pace in 9 months. Looking forward into the third quarter of 2010, sentiment towards capital values is strong in both Hong Kong and China albeit at a slower pace into Q3 in the former.

RICS member Francis C W Li of DTZ said, "The Hong Kong property market in general is very tight in terms of new supply and benefited from an early recovery of the Chinese economy. The high liquidity and low interest rate environment favour investments into real estate to hedge against up-coming inflation."

Indicators for occupier demand, rental expectations and the number of investment bidders per property in China still remain strong despite measures introduced by the Chinese government to address the property boom. Not being threatened by the recent government tightening measures, surveyors continue to expect price rises in commercial property in China into Q3 and at a similar pace to the previous quarter.

Rental expectations increased at a slightly faster pace than Q1, moving from +21 to +26. Interestingly, capital values increased at a marginally faster pace, improving to +59 from +55 although expected capital values moderated a touch to +38 in Q2.

Elsewhere in Asia, latest figures from Singapore indicate rental expectations turned positive for the first time in 2 years as actual rents rose modestly in a strengthened lettings activity. Thailand was one of the few markets in the Asia where sentiment has waned in the most recent quarter.

From a global perspective, property markets in the more dynamic economies of South America, Asia and Eastern Europe are outperforming those in the UK and Eurozone. On the occupier side, Brazil recorded the most positive net balance with 85 percent more surveyors indicating a rise in demand for space. Brazil also came out on top in regard to rental expectations, with a net balance of 74, followed by Hong Kong, India and Peru.

The outlook for capital values broadly mirrors the rental trends with Brazil and Peru leading the country rankings. Significantly, France is bucking the negative Eurozone trend with more material signs of an upturn in sentiment towards real estate reflecting, in part, the relatively resilient performance from the domestic economy.

RICS chief economist Simon Rubinsohn said: "The real estate world continues to be split broadly speaking between the emerging and developed economies. Strong growth in many of the former, including the likes of Brazil, Hong Kong and India, is continuing to boost demand for new space from occupiers as well as encouraging investment activity. Meanwhile in many of the latter, fiscal retrenchment allied to bank deleveraging continues to place significant obstacles in the way of a meaningful recovery in the commercial property market."

Blue Cross Moves to Detroit’s GM Renaissance Center

Edited: Lisa Benston
Source: Blue Cross Blue Shield of Michigan, General Motors

In a move designed to reduce its long-term real estate costs, improve its corporate culture and promote efficiencies, Blue Cross Blue Shield of Michigan (BCBSM) will move approximately 3,000 employees from Southfield, Mich., to Detroit's GM Renaissance Center starting in 2011.

The agreement finalized by BCBSM, General Motors, the City of Detroit, Wayne County, and other parties will relocate BCBSM workers into 435,245 square feet of space in Towers 500 and 600 of GM Renaissance Center.

The phased move will save BCBSM more than $30 million in long-term real estate costs. It will reduce BCBSM's real estate footprint by more than 400,000 square feet. It will increase BCBSM's downtown Detroit workforce to about 6,000. BCBSM will retain its current Detroit offices located at 500 and 600 East Lafayette Boulevard and 441 East Jefferson Avenue – creating a campus extending from the Detroit Riverfront to Lafayette Boulevard. BCBSM will become one of Detroit's largest downtown employers.

"Creating a single campus for our southeast Michigan workforce will dramatically improve our corporate culture by bringing our people closer together to accomplish our shared goals," said Daniel J. Loepp, BCBSM president and CEO. "It will also significantly improve our operational flexibility, which is necessary as we continue to respond to national health care reform."

The 3,000 additional workers will provide a significant boost to the downtown Detroit economy and to GM Renaissance Center, filling formerly vacant space and helping the landmark facility long-term. The move will produce savings for BCBSM, given that its two equally sized campuses – a four-building property on 11 Mile Road in Southfield and a three-building campus downtown Detroit – currently contain vacant space after the company offered voluntary separation packages last year.

"Blue Cross believes that this move will provide a healthier future for our company, our stakeholders, our state and Detroit," Loepp said. "In the interests of our company's future, we see this as a giant opportunity to improve our business, lower our costs and deliver on our mission."

"We are grateful for the leadership shown by Detroit Mayor Dave Bing, Wayne County Executive Robert Ficano, GM and their teams, to facilitate this historic decision for our company and our region," said Loepp. "I realize this move will have an impact on our employees. Our employees have my commitment that they will not just be fully informed, but also asked to contribute to decisions involving the project."

BCBSM will remain among the top employers in Oakland County. The corporate headquarters of Blue Care Network, BCBSM's HMO subsidiary, will remain in Southfield. BCBSM also will invest in improving its facility in New Hudson. That facility is used for meetings and employee education, and serves as the enterprise's disaster recovery center. More than 1,200 full-time and contractual employees work at both locations.

BCBSM also will sell its four-building campus on 11 Mile Road in Southfield to a private firm. This will make the property taxable by local governments. The tax value is estimated at $1.8 million to $2.2 million.

Hooters Taps Colliers International for Global Real Estate Expansion

Edited: Lisa Benston
Source: Colliers International

Hooters of America, Inc. and Colliers International jointly announced today that the iconic restaurant company is undertaking an ambitious worldwide expansion, with plans to increase its location count by at least 15 - 20 percent annually over the next several years. The high profile chain currently has more than 455 locations worldwide with restaurants in 29 countries on six continents.

To expedite this aggressive expansion plan and increase its global presence, Hooters has selected Colliers International as its preferred real estate provider, to both identify new locations and negotiate lease terms, as well as advice on tactical planning for optimal branding exposure. With more than 480 offices in 61 countries, Colliers International is consistently ranked as one of the world's top commercial real estate organizations, as well as a top outsourcing company.

"Colliers International has respected, seasoned retail and restaurant specialists across their global enterprise and one of the most well-respected brands in the real estate industry," said Michael P. Locey, Hooters Vice President of Strategic Development. "We are confident that they will help our franchisees find superior locations faster and negotiate better terms."

"Hooters is one of the most distinctive and recognizable casual dining restaurant chains in the world, with a tremendous platform for growth," said Scott Thiell, Managing Director of Colliers Retail Services Group, who leads the Hooters real estate efforts. Assisted by Patrick Duffy, Chairman of Colliers Retail Services Group, Thiell will also work with regional Colliers International directors in the Pacific Rim, Latin America, North America, Eastern and Western Europe and Africa. "We have a long-standing relationship with Hooters globally, with expectations that Hooters — and its dominant brand — will be a large draw worldwide."

Hooters' ideal locations — ranging between 3,000 and 5,000 square feet (280 to 465 m2) typically boast retail, office, hotel, tourism, festival, urban and industrial traffic drivers. Hooters' guests represent a wide variety of demographic backgrounds and categories, including professional, trades, sports teams, military and families. Hooters also has a flexible design concept, which allows for freestanding or in-line locations, and will consider conversion space and new builds.

Crown Square Helps to Revitalize the Old North St. Louis Neighborhood

Edited: Lisa Benston
Source: Enterprise Community Investment, Inc.

The Regional Housing and Community Development Alliance, Old North St. Louis Restoration Group and Enterprise Community Investment, Inc. (Enterprise) today announced the opening of Crown Square, a $35 million restoration of twenty-seven buildings now comprised of retail/commercial space and homes, transforming what was the 14th Street pedestrian mall

"Crown Square is a key component to the revitalization of this community," said Stephen Acree, president, Regional Housing and Community Development Alliance. "The investment in these buildings has created jobs through small businesses and homes for people in every economic sector. This neighborhood used to be a strong commercial center in St. Louis and we are excited that it has a chance to be so again."

Just down the street from the historic Crown Candy Kitchen, the new development offers 34,000 square feet of street level commercial and retail space and 80 mixed-income rental homes including apartments, townhomes, live and work spaces and lofts. More than half of the homes are designated for low-income households and the remaining 38 apartments are available at market rate. As part of the neighborhood redevelopment, $2 million was invested in storm and sanitary sewer construction, utility relocation, parking areas, public lighting, grid integration and other public amenities to support a strengthened infrastructure.

"Housing is an important factor in the rebuilding of neighborhoods," said John Ducey, vice president of structured finance, Enterprise. "However providing commercial development where people can own their own businesses and become a part of the economic fabric of a city is just as important. Crown Square is a great addition to St. Louis because it was designed to provide both."

Financing for Crown Square was made possible by a mix of federal and state tax credits, and public and private funds. A large portion of the financing was made available through New Markets Tax Credits (NMTC), one of the most successful federal financing tools that funds the construction of commercial and residential/retail mixed-use properties in low-income areas. Enterprise provided a $12.5 million NMTC allocation and McCormack Baron Salazar in St. Louis allocated $5 million in the tax credits. US Bank is the investor for both allocations.

Since its inception, more than $16 billion in private capital has been raised by NMTCs to support more than 15,000 businesses. It has also helped to develop or rehabilitate more than 68 million square feet of real estate, and has created more than 300,000 jobs in low-income communities.

"The construction of Crown Square helps to build lifelines in this community," said Constantino (Tino) Ochoa, president of the board of directors, Old North St. Louis Restoration Group. "It's our goal to help rebuild Old North St. Louis with properties that respect the cultural, historic and urban character of the neighborhood. We welcome the old and new friends that will join our community because of Crown Square."

In addition to NMTC equity, US Bank also provided funding through other federal and state Historic Tax Credits. CityScape Capital Group supplied $1.7 million in federal Historic Tax Credit equity and PNC Multifamily Capital invested $4.94 million in federal Low Income Housing Tax Credit (LIHTC) equity. Enterprise Bank & Trust (not related to Enterprise Community Investment), with participation from Pulaski Bank, provided $7.33 million in tax-exempt bonds. Enterprise Bank also provided bridge financing. Missouri LIHTC equity was invested into the property through Horizon Asset Management. The City of St. Louis and the State of Missouri provided HOME funds. A Community Development Block Grant and Affordable Housing Trust funds were also supplied by the City of St. Louis. Other financial partners are the Danforth Foundation, the East-West Gateway Council of Governments/Missouri Department of Transportation and Fannie Mae. The Regional Housing and Community Development Alliance and Enterprise Community Loan Fund provided predevelopment loans during the first stage of the Crown Square project.

For more than 25 years, Enterprise has introduced neighborhood solutions through public-private partnerships with financial institutions, governments, community organizations and others. Enterprise has raised and invested more than $10 billion in equity, grants and loans to help build or preserve more than 270,000 affordable rental and for-sale homes to create vital communities. Enterprise is currently investing in communities at a rate of $1 billion a year.

Real Estate in Emerging Economies Outperforms Eurozone and UK; U.S. Outlook Improves

Edited: Lisa Benston
Source: RICS Americas

Property markets in the more dynamic economies of South America, Asia and Eastern Europe are outperforming those in the United Kingdom and Eurozone, according to the RICS Global Commercial Property Survey for the second quarter.

The Survey suggests that real estate performance in the United States has shown a marked improvement while in Latin America the commercial property market continues its bull run.

Respondents in Peru and Brazil were most upbeat, topping all in the Americas for both rental and capital value expectations. Survey respondents in Canada currently view the market as stable.

"The real estate world continues to be split, broadly speaking, between the emerging and developed economies," said RICS chief economist Simon Rubinsohn. "Strong growth in many of the former, including the likes of Brazil, Hong Kong and India, is continuing to boost demand for new space from occupiers as well as encouraging investment activity. Meanwhile in many of the latter, fiscal retrenchment allied to bank deleveraging continues to place significant obstacles in the way of a meaningful recovery in the commercial property market."

Occupier demand is rising in the majority of countries across the globe with the notable exception of the UK and Eurozone countries where the tough measures that have been taken to reduce fiscal deficits appear to be having a more pronounced impact on the appetite of businesses to take up new space. Significantly, France is bucking the negative Eurozone trend with more material signs of an upturn in sentiment towards real estate reflecting, in part, the relatively resilient performance from the domestic economy. Property professionals in the United States reported a rise in tenant demand across all three sectors for the first time in three years.

Brazil is leading the way with the net balance of property professionals reporting a rise in occupier demand moving from 70 percent to 85 percent with markets in Peru and China also performing well. By way of contrast, demand in the UK turned negative for the first time in a year with the net balance falling from a positive 14 percent to a negative 4 percent while the net balances in Spain, Germany and Greece are all in negative territory.

Indicators in China remain strong despite measures introduced by the Chinese government to address the property boom. Indicators for occupier demand, rental expectations and the number of investment bidders per property all remain firmly in positive territory. Elsewhere in Asia, the latest numbers from India suggest a strong showing from real estate in the second quarter despite the increase in interest rates.

Looking forward into the third quarter of 2010, sentiment toward capital values is particularly strong in France, Peru and Brazil while property professionals are most optimistic on rental increases in Brazil, Hong Kong and Peru.

RICS' Global Commercial Property Survey is a quarterly guide to the developing trends in the commercial property investment and occupier market. This edition details market conditions for the 2nd quarter of 2009 based on information collected from leading international real estate organizations and local firms.

Starwood Hotels Set To Grow NYC Portfolio By 50%

Edited: Lisa Benston
Source: Starwood Hotels & Resorts

Starwood Hotels and Resorts, Inc. announced that it will grow its New York City portfolio by 50% this year and open more hotels in New York in 2010 than any other city in the world. Today, Starwood operates 12 hotels in the Big Apple across six of its nine distinct brands. The company's NYC boom will result in 18 high-caliber Starwood hotels including the debut of Starwood's two newest brands in Manhattan — Aloft and Element. Starwood is on track to open more than 80 hotels in key markets around the world this year.

During the remainder of 2010, Starwood will open six new hotels in neighborhoods across Manhattan, as well as in Long Island City and Brooklyn, representing 25% of the new hotel rooms in New York City — one out of four new hotel rooms slated to debut in the city this year will be branded Starwood. In May, the Sheraton Brooklyn opened its doors, bringing the total number of new Starwood hotels to open in the Big Apple in 2010 to seven. The company's aggressive growth will bring 1,712 new hotel rooms and more than 500 new jobs to New York City.

"While nearly 80% of our future hotel pipeline is outside of the United States, we have more hotels in New York City than any city in the world and we will open more hotels right here in our backyard than anywhere else, which speaks to New York's enduring stature as the most global gateway city in the world," said Frits van Paasschen, CEO of Starwood Hotels and Resorts. "New York continues to be a beacon for international business and leisure travelers alike, and as we look to the future, we expect that as masses of travelers from China, India and other emerging markets begin to travel internationally, New York will be at the top of their list. We couldn't be more bullish on New York near or long term."

Over the past several months, NYC occupancy has continued to surpass last year's levels: June occupancy averaged 86.4%, up 5% over last year at the same time. In addition, 45.25 million tourists visited in 2009, exceeding expectations by 7%. By 2012, New York City anticipates attracting 50 million visitors annually and there is a need for new hotels to meet this demand. New York maintained its position as the world's most popular tourist destination for international visitors last year, and emerged as the top choice for domestic travelers for the first time in nearly 30 years. To meet the accommodation needs of these travelers, by 2011 75% of Starwood's portfolio in New York will be brand new or freshly renovated.

"In 2010, we will further diversify our strong portfolio in New York City by adding seven strategically located hotels, all backed by our powerful Starwood Preferred Guest program," said Denise Coll, President of North America Division for Starwood Hotels and Resorts. "We have spent the past three years preparing for New York City's economic recovery by working closely with our proven development partners on the right properties in the right places. As a result, we’re ready to meet the resurgence in demand for our high-quality lifestyle brands in neighborhoods across the city."

Starwood to Debut Aloft and Element in the Big Apple

This year, Starwood will debut its two newest lifestyle brands in New York City with the opening of Aloft hotels in Harlem and Brooklyn and its first Element hotel in Times Square. By the end of the year the Aloft and Element brands will have a combined portfolio of nearly 59 properties worldwide. Aloft is the stylish new select service lifestyle brand derived from the DNA of W Hotels, and Element, which is inspired by Westin Hotels & Resorts, and offers an eco-savvy experience for longer-stay guests.

Starwood's Iconic Sheraton Brand is Tribeca and Brooklyn Bound

The summer opening of the Sheraton Brooklyn New York Hotel will be followed by the opening of Sheraton Tribeca New York Hotel in September. Sheraton and its partners are also continuing to invest in upgrading its existing flagship hotel, the Sheraton New York Hotel & Towers, which is slated to begin a $100 million renovation later this year. These enhancements to the Sheraton brand's NYC portfolio stem from its recently completed $6 billion global, multi-year revitalization program, which resulted in $2 billion in new hotels and $1.3 billion in renovations.

W Brings Style to Wall Street with New Downtown Hotel

New York City remains the epicenter of W Hotels Worldwide, with four currently open in the metro area, and the new W New York — Downtown Hotel & Residences opening this summer. W continues to evolve its existing landmark hotels, recently renovating W New York and W New York — Times Square. Since the very first W opened in New York City in 1998, the hotel portfolio has increased to 35 W Hotels around the world and plans to more than double its portfolio by the end of 2011.

Four Points by Sheraton Heads to Long Island City

Four Points by Sheraton continues to make inroads in New York City with the upcoming opening of Four Points by Sheraton Long Island City this summer. The fast-growing brand made its debut six years ago in the Big Apple, where it expects to have a total of seven hotels by 2011.

Starwood Moves Design Headquarters Downtown

Earlier this spring, Starwood also relocated its Manhattan-based luxury and design-led brands from Chelsea to new headquarters on Varick Street at the junction of Soho and Tribeca, two of New York City's most creative neighborhoods. The new design offices house the design and brand marketing teams across the company's W, Le Meridien, St. Regis and Luxury Collection brands.

U.S. Industrial Sector Improving, but Recovery Remains Bumpy

Edited: Lisa Benston
Source: Cassidy Turley

The U.S. economy absorbed industrial space for the first time in 18 months, according to a new report released today by Cassidy Turley. In all, net demand for warehouse and flex space registered positive 6 million square feet – the biggest gain since the first quarter of 2008. The market leaders in the second quarter include Phoenix, Memphis, Louisville, Cincinnati, and Northern New Jersey – all of which recorded over 1 million square feet of positive demand. However, the report emphasizes that the industrial market will remain lackluster for several quarters to come.

"This report signals that businesses are gearing up for a year of better demand," said Kevin Thorpe, Chief Economist for Cassidy Turley. "They are preparing for better demand related to consumer products, better demand for motor vehicles and parts, better demand for construction materials, but better demand should not to be confused with robust demand or even consistent demand. For perspective, following the 2001 recession, there were seven quarters of negative absorption before the market truly turned the corner."

According to the report, mid-way through 2010, the U.S. industrial market inventory has grown by just 8.7 million square feet – a pace that is 80% below the historical annual average.

There is currently 1.1 billion square feet of empty industrial space on the market and another 14.0 million square feet under construction.

The report also points out that recent setbacks in the U.S. economy have created increased risks to the recovery in the industrial sector, but the general trend remains upwards.

"Since closing the chapter on the second quarter, consumer confidence has fallen back, retail sales have slipped, and employment indicators that correlate with demand for industrial space have weakened," added Mr. Thorpe. "None of this is surprising. Recovery periods are always bumpy and fraught with setbacks, but rarely do these setbacks result in a double-dip. Thus, our forecast for the economic recovery and the industrial recovery remain largely intact."

In the second quarter of 2010, U.S. industrial vacancy registered 9.9%, up 10 bps from the previous quarter. Although the trend has remained essentially flat since September of 2009, vacancy was still 180 bps above its historical 10-year average of 8.0%. Average asking rents for warehouse space were $5.10 NNN, a 1.1% decrease from that registered in the previous quarter. This marks the seventh straight quarter of rent declines.

As the demand for industrial space slowly comes back to life, Cassidy Turley reports that sale volume rose to $3.1 billion in the second quarter, the strongest quarterly level of activity since the fourth quarter of 2009. Year to date, industrial sales volume is $5 billion, up 28% compared to this same period one year ago.

Cassidy Turley also reports that sales of industrial properties are picking up, with the greatest increase in activity observed in port cities as well as certain pockets in the Midwest. Los Angeles and Orange County alone accounted for over 21% of total warehouse sales thus far in 2010. Chicago saw 14 deals trade for $166 million and Indianapolis saw 7 properties trade for $70 million.

Regional Summary:

The South led all regions as net demand registered at 5.3 million square feet of industrial space in the second quarter of 2010. Louisville & Memphis led the way, both recording over 1 million square feet in positive absorption. Both markets have benefited from growing storage needs related to healthcare, motor vehicles, and an improvement in construction and infrastructure projects driven in part by stimulus funding.

The West region also experienced a solid rebound in demand. Phoenix posted the highest regional gain of the quarter, recording +1.4 million square feet of absorption. The Phoenix metro area's economy is showing strong signs of recovery, as the manufacturing sector, retail trade, and corporate profits from area employers posted strong gains.

The performance in the Midwest was very uneven throughout the region, as some markets including Cincinnati, Detroit, and St. Louis recorded very strong gains in absorption, where other markets, such as Chicago and Cleveland posted losses that exceeded 1 million square feet. The uptick in demand in the region was driven largely by expansion in consumer-related products and from logistics and transportation companies – an early indication that businesses are gearing up for more growth.

In the Northeast, net demand registered negative 1.1 million square feet. Despite being the only region to experience a drop in demand in the second quarter, conditions have improved as employment gains occurred in almost every sector over the quarter. Northern New Jersey posted the most significant gain in the quarter with positive 1 million square feet of absorption.

CBRE’s Revenue and Earnings for Q2 2010 Reflect Recovering Market Conditions

Edited: Lisa Benston
Source: CB Richard Ellis Group, Inc.

CB Richard Ellis Group, Inc. today reported higher revenue and earnings for the second quarter ended June 30, 2010. Earnings per share improved to $0.17 on a 23% revenue rise while EBITDA more than doubled. These results represent the Company’s strongest quarterly year-over-year growth in revenue since the fourth quarter of 2007, and in EBITDA, excluding selected charges, since the first quarter of 2007.

“Our financial performance continued to strengthen across most business lines globally, and we have good momentum entering the year’s second half,” said Brett White, chief executive officer of CB Richard Ellis. “In the U.S., we saw a very strong pick up in property sales and leasing, reflecting recovering market conditions. Europe produced robust growth, fueled by the recovery of the property sales market in the larger economies, such as the U.K., Germany and France. Asia Pacific also sustained the strong top-line growth that first became evident there late last year.

“We are mindful of concerns about the pace of economic recovery, but the rebound in commercial real estate activity is progressing. During the 2008-2009 downturn, we removed more than $600 million of expense from our platform. We predicted then that even a modest recovery would produce outsized gains in profitability due to this cost reduction, and this is precisely the result we are now seeing. We are a very efficient, client-centric organization with a diversified revenue base, resulting in operating leverage that, as we saw in the second quarter, enables us to drive strong EBITDA growth and margin expansion.”

Revenue rose at a double-digit rate across all major business lines, except Development Services, with property sales and leasing growing globally by 61% and 29%, respectively. The property sales recovery was particularly strong in Europe (up 93%) and Asia Pacific (up 67%). The Americas also saw revenue grow significantly in both the property sales (up 47%) and property leasing (up 37%) business lines. Reflecting increased liquidity in the real estate capital markets, commercial mortgage revenue rose 33% and loan origination volume improved 30% from the year-earlier quarter’s very weak level.

Globally, outsourcing revenue, including property and facilities management, increased by 10% in the second quarter, its strongest growth since the third quarter of 2008. International outsourcing growth was once again very strong, with Asia Pacific and Europe posting revenue increases of 44% and 27%, respectively. The Company also achieved significant new business, signing 34 multi-year contracts, its highest quarterly total ever. This total included 17 new clients – including Deere & Company, Genbrand and NYSE Euronext – and 17 contract renewals or expansions, including Boeing, Chevron, Marathon Oil Corporation, Microsoft, Rockwell Automation, The Coca Cola Company, and the United States Department of State.

Although the market for distressed asset dispositions has developed more slowly than originally expected, the Company has continued to capture substantial opportunities in this sector. In the U.S., it is now marketing more than $7.5 billion of distressed assets and has successfully sold more than $1.3 billion of such assets since the beginning of the year. CB Richard Ellis also has a sizeable distressed asset specialty services business in Europe. In the U.K., the Company arranged for the sale of seven properties on behalf of the borrowers, administrators and receivers of the defaulted White Tower 2006-3 portfolio of CMBS loans, for aggregate gross proceeds of approximately $1.1 billion.

During the second quarter, the Company’s Development Services subsidiary completed two dispositions of high quality assets in the greater Houston market. Gains from these sales contributed to a significant increase in EBITDA for this segment during the quarter.

Following the close of the quarter, the Company pre-paid $150 million of its Term B loans maturing in December of 2013. In addition to the interest expense savings on the pre-paid debt, this pre-payment will lower the annual interest expense on the Company’s remaining $898 million of Term B loans by 50 basis points.

Second-Quarter 2010 Segment Results

Americas Region

Revenue for the Americas region, including the U.S., Canada and Latin America, rose 20% to $722.3 million for the second quarter of 2010, compared with $601.6 million for the second quarter of 2009. Operating income for the Americas region rose nearly three-fold during the current quarter to $72.2 million from $26.5 million for the second quarter of 2009. EBITDA for this region totaled $89.8 million for the second quarter of 2010, more than double the $42.6 million produced in last year’s second quarter. The region saw meaningful improvement across all business lines during the quarter.

EMEA Region

Revenue for the EMEA region, which mainly consists of operations in Europe, rose 28% to $225.4 million for the second quarter of 2010 from $176.6 million for the second quarter of 2009. The EMEA region reported operating income of $18.0 million for the second quarter of 2010, up very significantly from operating income of $3.4 million for the same period in 2009. EBITDA totaled $19.9 million for the second quarter of 2010 – more than three times the $5.9 million of EBITDA achieved in last year’s second quarter. These improved results reflect better business performance in the larger countries in Europe, particularly the United Kingdom, Germany and France.

Asia Pacific Region

In the Asia Pacific region, which includes operations in Asia, Australia and New Zealand, revenue rose 29% to $158.7 million for the second quarter of 2010 from $122.7 million for the second quarter of 2009. Operating income for the Asia Pacific region remained relatively flat at $10.8 million for the second quarter of 2010 compared with the same period of 2009. EBITDA increased slightly to $12.8 million for the second quarter of 2010 compared with $12.2 million for last year’s second quarter. These results reflect a shift in the revenue mix and aggressive hiring in this region to support expected growth.

Global Investment Management Business

In the Global Investment Management segment, which includes investment management operations in the U.S., Europe and Asia, revenue increased 44% to $46.9 million for the second quarter of 2010 from $32.6 million in the second quarter of 2009. This segment posted operating income for the second quarter of $3.4 million, compared with operating income of $4.5 million for the same period in 2009. Second-quarter 2010 EBITDA rose to $10.8 million, compared with EBITDA of $2.2 million in the prior year second quarter. The improvements noted in revenue and EBITDA in the current year were largely attributable to the consolidation of several properties due to a change in accounting regulations effective January 1, 2010. This accounting change had no bottom line impact. EBITDA for the second quarter of 2009 included $2.6 million of net non-cash write-downs, which were not included in operating income and did not recur in the current year quarter.

Assets under management totaled $33.7 billion at the end of the second quarter, down 3% from year-end 2009, but up 1% from the first quarter of 2010.

Development Services

In the Development Services segment, which consists of real estate development and investment activities primarily in the U.S., revenue totaled $18.7 million for the second quarter of 2010, compared with $22.2 million for the second quarter of 2009. The operating loss for the second quarter of 2010 was $7.3 million, compared with $6.4 million for the same period in 2009. Second-quarter 2010 EBITDA was $28.4 million, up from $5.5 million in the prior year second quarter. The increase in EBITDA was primarily driven by gains on property sales reflected in equity income and income from discontinued operations, both of which are included in the calculation of EBITDA but not operating income.

As of June 30, 2010, development projects in process totaled $4.4 billion and the inventory of pipeline deals as of June 30, 2010 was $0.8 billion. These totals are down from $4.7 billion and $0.9 billion, respectively, at year-end 2009.