MacRo shares a campaign platform wish list from a commercial real estate perspective.

In “Mayor, Mayor, on the Wall, Who’s the Strongest of Them All?” I gave an overview of the candidates for the 2013 City of Frederick mayoral election.  This is the second part of that post.

In follow up, here are the goals I believe the next mayor of Frederick should pursue:

1.  Bring the City of Frederick’s fiscal house to order.

Post-employment benefit and pension obligations: This line item is a tremendous burden on the budgets of municipalities across the country. While the current administration has made adjustments during the past year—by  increasing participant contributions, changing the calculations for retirement age and salary basis, increasing the age of early retirement, and dropping a several hundred thousand into the city’s OPEB and pension funds—it seems to me that there is a lot more work to do to tame this albatross.  This is one Can that can not be kicked any more.

Tax equity between the city and the county: A reasonable effort was made between these two jurisdictions over the issue of the double taxation of city residents and businesses for services provided by the county for the benefit of the city.  While a tax-differential calculation is a good concept, is a $0.04 reduction in property taxes enough to resolve this issue?

Merge city and county services where appropriate: For several years I wondered if there was a cost efficiency to local government if the city were to annex all of Frederick County in under its umbrella, a strategy adopted by many cities throughout the country—Jacksonville, Florida and Indianapolis, Indiana to name two.  But after further review, I realized that creating bigger bureaucracy does not necessarily make for a more efficient government.  That said, the idea of merging the departments of the city and county water and sewer services, among others, could make sense.

2.  Serious pursuit of economic development.

We all know about the plans to complete the next phase of the Carroll Creek Linear Park, and hats off to the current administration for finding the funding to do so, but that alone is a mere fresh coat of paint to what else could be done.

Adjust expectations on hotel/conference center: The city has placed a great focus and expense on laying out guideline to attract a hotel/conference center for downtown.  And while studies that have been produced show how a 200 plus room hotel and 15,000 square foot conference center  will bring tremendous economic benefit to downtown, from the commercial real estate developer perspective none of the studies prove something of that size to be a worthy investment risk.  Lowering the sites on what is feasible now will make sense.

Complete airport runway expansion: According to my calculations, nearly $20 million has been invested in tower construction and property acquisition around the airport … not including the costs associated with the extension of Monocacy Boulevard.  That’s more than a big investment.  But still nothing has been done to complete acquisition of the easements required to lengthen the runways.  Imagine the economic benefit and revenue boost the city will gain from expanding Maryland’s second busiest airport!  This may be a challenge giving that the FAA is facing cuts from sequestration, but still worth pursuing.

Resolve unrealistic land use plans: Back in 2005 (I like to refer to the years around that time as the “Fantasy Years”), the City adopted a masterful novel called the Land Management Code.  Upon reflection and subsequent application (or lack thereof), it has become clear that many parts of that volume established unrealistic expectations that do not work for the new world order.  Consider the residential density formula for vacant downtown parcels … from a multifamily development perspective an increase could be warranted for certain core areas of downtown, which could provide the additional benefit of bringing more workforce housing to Frederick.

Better use of parking meters and decks, and onsite parking requirements: I could and should devote an entire blog post on this issue.  Meager efforts have been made in addressing how to generate enough revenue from meters to be able to finance the parking structure planned behind the headquarters of Frederick County Public Schools.  Imagine the incredible boost in property tax revenues the City of Frederick could realize from expanding development along the Carroll Creek … and the secret lies in two things: density and parking.

Resolve the sewer and water tap fees issue: Water and sewer tap fees are a significant hurdle to new service-sector businesses trying to locate downtown. Every commercial real estate agent in Frederick knows this is a common roadblock the stops prospective tenants and buyers cold. Even restaurateurs with the clout of Bryan Voltaggio struggle to overcome the expenses involved in opening new locations downtown.

3.  Fearless leadership and decision making:

For far too long the proverbial can has been kicked down the road from City Hall.  Much has been said about what has been accomplished; our next leader must be willing to truly address issues head on as the very fragile recovery continues.

At this point, I will give Mayor Randy the benefit of the doubt as a first term elected official, but I do think that he could have taken a stronger position on several of the issues listed above.  I believe that of this year’s crop of declared and would-be candidates all have the ability to lead.  But as the campaign gets more heated and the blood bath begins, let’s hope the strongest and best leader will emerge!

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and for Want2Dish.com.

Frederick City’s next mayor needs to bring fiscal order and a commitment to economic development.

 It appears that the dust has settled enough from the 2012 U.S.presidential election.  Maybe not for all; so let’s just say that while most are somewhere between fed up and infuriated with all the inside-the-beltway banter, it is time for many to place focus elsewhere.

For nearly 30% of the residents of Frederick County, it is time to start paying attention to the next political drama that is slowly unfolding as I “put pen to paper” for this blog post…actually to be more precise, I should say “tap fingers to iPad.”

Yes, in less time than it takes for a man and woman to conceive a child and bring it into the world, Frederick City voters will have gone to the polls for the 61st time to cast their ballot for a new Mayor and Board of Aldermen.

The Mayoral race is especially shaping up to be what one current city “alder-person” predicts will be a “blood bath.”

Let us consider the announced candidates and those who may well yet throw their hats—and “hand grenades”—into the ring.

On the republican side, there is current Mayor Randy McClement, who might face immediate past Mayor Jeff Holtzinger, who has told me that he may very well run again.

On the democratic side, the match-up to watch will be that of current Alderman Karen Young (wife of State Senator and former Mayor Ron Young) versus long-time Maryland House of Delegates member Galen Clagett, who is also a former Frederick County commissioner, as well as a local real estate mogul of sorts.

Among the yet-to-be-announced, there are strong indications that former Mayor Jennifer Dougherty may jump in for another run as a third-party candidate.

One of the great things about living is a community the size of Frederick County is that if one lives here long enough, he or she can get to know all the candidates very well.  In my case, I happen to know all well and consider each one a friend.  And since I live outside the boundaries of the city, I will not have to face that difficult behind-the-curtain decision on Election Day.

Be that as it may, as a 40-year member of this community, and someone who is active in the land and commercial real estate business, I do have a few thoughts on the platforms of whoever seeks the throne at City Hall.

There are three primary issues that I will be looking for on the platforms of the Frederick City mayoral candidates:

• serious commitment to—and a plan for—bringing the City of Frederick’s fiscal house to order;
• a no-holds barred commitment to economic development; and
• strong leadership qualities along with the courage and willingness to stop “kicking the can” down the road.

In Part II of this post I’ll dig into these three issues in depth, identifying critical areas that could use some attention from the city’s next administration.

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com  and for Want2Dish.com.

Will the housing recovery boost Frederick’s industrial market in 2013?

 Overall, 2012 was a good year for leasing in Frederick’s industrial real estate market, at least from an absorption standpoint.   Total square footage leased (absorption) quadrupled last year over 2011 levels, with a total of 549,483 SF of industrial space leased during 2012 versus 102,365 SF in 2011.  This compares with negative absorption of (70,767) SF in 2010 and (174,193) SF in 2009.

Even taking into account that 330,000 SF of increased absorption in 2012 was due to delivery of National Cancer Institute’s new R&D building in Riverside Park during the 2^nd quarter, 2012 was still the best year for industrial leasing in Frederick in quite a while.

In terms of sales, 2012 was fairly quiet.  There were a couple of large deals cherry-picked by institutional investors, Matan bought some investment properties, and a few owner/users came off the fence to purchase warehouse space for their businesses.

Following are the top 5 industrial real estate deals of 2012:

1)     $12,200,000:  7114 and 7118 Geoffrey Way (Wedgewood IV in Frederick)

Emergent BioSolutions sold buildings 1 and 3 in Wedgewood IV to Matan Realty for $12.2 million in March.  The total portfolio was 292,000 SF ($41.78/SF).  Both industrial buildings are 146,000 SF in size.  Both buildings had been vacant since Emergent BioSolutions purchased them in 2005.  Matan has the properties listed for lease.

2)   $4,457,854:  4484 Quad County Court (84 Lumber in Mt. Airy)

84 Lumber sold their site in Mt. Airy in June to Spirit Realty Capital for a price that computed to $147.25/SF for the building or $3.49/SF for the nearly 30 acres of land.  Spirit Realty Capital specializes in financing and investing in single tenant sale/leaseback deals.

3)  $3,000,000:  630 Solarex Court (B.P. Solarex in Frederick)

Bristol Frederick, LLC purchased the 157,483 SF BP Solarex property in June for the bargain price of $19.05/SF for the building or $2.00/SF for the 23 acres of land.  The property is once again on the market, for sale and lease (65,000 SF).  Prices are not listed.

4)  $2,999,000:  5245 Westview Drive (Fitness First in Frederick)

Fitness First purchased this 23,011 SF building ($130.33/SF) in March from private owner/investors in Glenelg, Maryland.

5) $1,500,000:  6720 Manor Woods Road in Frederick

Grant County Mulch of West Virginia purchased this industrial warehouse property for about $129/SF in February to expand their mulch business.  This property was never listed for sale.  The mulch company approached the owner directly to initiate the sale of the property.

Looking forward to 2013, the crystal ball is a little murky.

GDP stumbled during the 4^th quarter of 2012, and there were three main drivers behind the slowdown:  inventories, exports, and government spending.

Defense spending declined 22% (on an annualized basis) during the 4^th quarter of 2012 as government agencies and contractors scaled back in anticipation of sequestration.  Defense spending in this area has a much greater impact on the office market than industrial, but because Frederick is so dependent on government jobs and spending it is always worth mentioning when a big change occurs.

Industrial real estate demand is primarily driven by inventories related to manufacturing, construction, and retail.

Major retailers are holding fast to a very tight just-in-time inventory approach.  The good news buried in there is that when retail sales do rise, so will inventories and warehouse absorption along with them.  I’m not sure how big an impact retail inventories have on Frederick’s industrial real estate market overall.

I do know residential construction will have an impact on industrial real estate demand locally.

New housing construction has a multiplier effect on a local economy:  construction jobs, warehouse demand, materials, home sales, etc.  Given that the number of residential housing permits issued in Frederick County in 2012 almost doubled from the previous year, one would hope that translates into improved demand for local warehouse space.

Housing inventories in Frederick are lower than they have been in years, and well below the historical average, which means that building permits will most likely continue to be issued at a brisk(er) pace to meet demand for housing in Frederick.

I’m curious how much of the demand for Frederick’s industrial real estate market is driven by residential construction and retail sales inventories.  If any of my readers has insight into that, please comment!

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and Want2Dish.com.

With the looming loss of Bechtel jobs, Frederick’s commercial office market needs new employers more than ever.

“If you didn’t like 2012, you probably aren’t going to like 2013.”

CoStar analyts opened their 2012 office market recap with that somewhat dubious statement, but in the end they delivered a mixed bag of good and bad news.

The U.S. office market is more or less reflecting the U.S. economy:  hot in some spots, a sluggish recovery overall, but moving in the right direction at least.

• Absorption overall in the U.S. office market has improved, meaning that more space is being leased up than is becoming vacant.   Not surprisingly, office markets with high concentrations of technology and energy businesses are red-hot right now:  Seattle, San Jose, and Pittsburgh (which posted the lowest vacancy rate among the 20 top markets in the U.S. due to it’s coal and shale industries).
• The Washington D.C./Maryland/Northern Virginia market has already seen the negative effects of government spending cutbacks.  Absorptions in that market dropped.  In fact, northern Virginia had the steepest decline (4 1/2%) in net absorption of any major market nationwide.  Interestingly, despite the increase in vacant office space there rents are continuing to climb in northern Virginia (perhaps because private businesses continue to flee Maryland for Virginia’s business friendly tax structure).
• REITs are now buying portfolios of office buildings (as opposed to single purchases of large iconic buildings in top markets like New York and Washington, D.C.)  In fact, CoStar declared “the window for top-dollar deals in D.C. has closed.” REITs are shopping instead in secondary and tertiary markets for buildings that offer better yields than top markets will bear.
• Bechtel is vacating 123,000 SF of office space in Frederick this year.  That is a blow to the Frederick market, and is nudging Frederick’s office vacancy rates up to almost 15%, which otherwise would have remained stable around 13.5%.

The loss of a major employer like Bechtel and higher vacancies in Bethesda and Rockville will likely put some pressure on the Frederick office market this year.  And we don’t yet know what the fallout of government spending cuts will be.

There’s really only one solution to the problem, as MacRo Report Blog has covered repeatedly:

MARYLAND NEEDS MORE PRIVATE EMPLOYERS IN MARYLAND.

During a recent roundtable of Frederick’s commercial real estate professionals, my colleague Gary Large of Ausherman Properties said it best: ”We can’t fill 3 million square feet of unoccupied office space with companies from Frederick.”

2012 TOP 5 COMMERCIAL OFFICE SALES IN FREDERICK, MARYLAND

1) $16,511,000            PNC Bank Building – 110 Thomas Johnson Drive

Greenfield Partners purchased this office building in a portfolio sale of 23 properties worth $161,900,000 from Corporate Office Properties Trust (COPT) in July.  The building is 122,491 SF in size ($134.79/SF).

2)  $3,350,000           North Ridge Professional Center – 130 Thomas Johnson Drive

This 13,204 SF medical office building with multiple tenants sold in June ($253.71/SF).

3)  $950,000              45 East All Saints Street

An investor purchased this 5,585 SF office building that backs up to Carroll Creek in downtown Frederick ($170.10/SF).

4)  $714,010             Conley Farm Building 1 – 7101 Guilford Drive, Unit 100

A Square Investments, LLC. purchased this office condominium in September from Clagett Enterprises.  The property is 3,097 SF ($230.55/SF).

5)  $670,000             New Market Professional Center – 164 West Main Street, Units E & F

Lighthouse Financial Advisors sold this property in July.  The two office condominums total 2,897 SF ($231.27/SF).

There were a couple of office buildings that sold in Frederick that qualified for this list based on recorded selling price, but as they appear not to be non-arms length transactions and not necessarily representative of true market value, they were not included.

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and Want2Dish.com.

A panel of leading Frederick commercial real estate professionals analyzes the market.

The Frederick County Office of Economic Development recently hosted a round-table discussion about the health and future of Frederick’s commercial real estate market, and I was invited to be a panelist.

I was joined by several esteemed colleagues, including:

Karl Morris, Director of Development, Matan Companies;

Gary Large, VP of Commercial Development, Ausherman Properties;

Jim Railey, President, Heritage Properties; and

Rick Farren, Senior Vice President, McShea & Company, who served as moderator of the group.

Our discussions covered the gamut of Frederick commercial real estate, from activity in the commercial real estate market past and present to apartment housing to Maryland’s failure to attract large employers.

Following is a snapshot of the main points of our debate.

The Big Picture

Karl Morris of Matan started the discussion by providing statistics that throws activity inFrederick’s commercial market—before and after the recession hit—into stark relief:

                                                     2003-2007                               2008-2012

Office Space Rentals             700,000 SF                                   75,000 SF

Flex Space Rentals                 710,000 SF                                 624,000 SF*

Industrial Space Rentals     1,000,000 SF                                 149,000 SF

*Total included 600,000 square feet leased to Wells Fargo & National Cancer Institute alone.

Apartments: The Next Big Thing is Already Yesterday’s News

 Apartment (multifamily) projects have exploded in theU.S. as distressed and foreclosed homeowners, along with skittish young adults, seek rental housing in droves.  Apartment vacancies are at a low 3.5% inFrederick.

According to Gary Large of Ausherman, there are three different apartment projects in the pipeline in Frederick County, which will bring a total of 1,000 new units.  Walnut Ridge, with 250 units, will be the first new apartment project in Frederick in 10 years.

Ausherman is finding a surprising niche market for apartments in Whittier:  divorcees.  Projects on the south side of Frederick, however, are drawing a younger market segment.

Panelists agreed that anyone trying to start a multifamily project at this point will be too late to the game to enjoy significant returns.  The Frederick market will be saturated by the time those units would hit the market.

Karl Morris noted during this discussion that while housing appears to be recovering (at last), it’s important to remember that there are still a great many people in the U.S. who can’t finance a home or are afraid to invest in homeownership.

It’s the Jobs, Stupid

With Bechtel moving 625 employees from Frederick to Northern Virginia, the office market is left with an even bigger hole to fill: Frederick now has a total of 800,000 square feet of unoccupied office space in the southern end of town alone.

Gary Large of Ausherman noted that with office rents in Rockville so low now, that a significantly higher number of Frederick residents are driving south to work than were prior to the recession.

The panelists agreed that Maryland is becoming less and less attractive to large national tenants, who more often than not choose to locate in Virginia instead of Maryland.  If there isn’t a significant effort by O’Malley and his team to effectively recruit new employers, the office vacancy rates in Frederick will remain high.  As Gary noted, “We can’t fill 3 million square feet of unoccupied office space with companies from Frederick.”

It doesn’t help that office space use overall is evolving, as more and more employers are hiring employees who work from their homes.

Flex is the Future

A member of the audience asked a great question:  “What happens to flex if we aren’t making stuff anymore?”

Danny Severn, a Sales Representative from St. John Properties shared that about 50-60% of their flex shells are now ultimately fitted out as office space versus for industrial or warehouse use.

Flex shells are much cheaper to rent and to finish than traditional Class A office space, and many businesses feel compelled to choose this no-frills option in an uncertain economy.

Karl Morris shared that Matan is banking on the “build to suit” flex lots like those in Wedgewood on the south side of town.  From an owner-user perspective, these properties are “shovel ready”—infrastructure is already in place to break ground, including water, sewer, traffic, and APFO.  Riverside Research Park is another example of this.

Frederick is a Safe Bet

The panel noted several reasons to be very optimistic about the future of Frederick’s commercial real estate market:

Ft. Detrick: While BRAC hasn’t brought as many jobs as hoped for, the improving economy may bring a resurgence of contractors and start-ups to the area related to Ft.Detrick.  The old buildings and labs at Ft.Detrick are very expensive to retro-fit, which means there is a good chance employers will choose to build out spaces in nearby Riverside Research Park instead.

Health and Bio Tech: Frederick has wisely cultivated a niche of health and biotech companies.  No one is arguing that growth in these industries has been—and should continue to be—explosive.  (The trick will be keeping these companies here once they outgrow start-up phase and become substantial employers.)

Frederick is a Jewel:  Gary Large concluded the discussions with this thought:  “Frederick still holds the quality of life card.”  And he is right. Frederick is the complete package:  tranquil countryside, excellent schools, and a beautiful, vibrant downtown with a thriving arts culture and world-class restaurants.

So, to sum it all up: if our governor will work in earnest to improve the balance between government and private employers in Maryland, Frederick’s commercial real estate market is poised to enter a sustained recovery.

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and Want2Dish.com.

Investors with deep pockets and institutional connections can turn quick profits.

Most sectors of the commercial real estate market throughout the nation has not appreciated much, if at all, since the recession began.  Nor is it bringing the high yields we experienced during the go-go days of the early 2000′s.

However, some opportunities do remain in this market for well-capitalized speculators with connections to institutional investors.

“Flipping” is not something we see that much in a third-tier suburban market like Frederick County, Maryland, but it seems that every few years there are a couple of big deals that pop a few eyeballs.  Consider last year … some folks turned quick profits.

Last week MacRo posted a list of Frederick’s Top 5 Commercial Real Estate Sales of 2012.  Two of the five properties on that list were flipped for substantial profits:

Brooklawn Apartments
Sold in 2010 for $8,033,000 ($7,633,000 apt. building, $400,000 unimproved lot)
Sold in 2012 for $10,100,000 ($9,600,000 apt. building, $500,000 unimproved lot)

Ca-Ching!

Tranquility at Fredericktowne
Sold in June 2012 for $8,403,079
Sold in December 2012 for $14,642,486

Triple Ca-Ching!

As previously reported in a MacRo post, the 86-unit Brooklawn Apartment complex was sold by my good friend Seymour Stern and his partners.  The buyer was Stonebridge Investments, a Dutch company that holds a portfolio of multifamily properties in D.C., Florida, and Texas.  An unimproved parcel of about 2.4 acres, with potential for additional units, was included in the sale.

O’Connell Development Group bought the property from Stonebridge in December of this past year—both the apartment complex and the unimproved land parcel—paying a total of $10,100,000.

MacRo has been tracking investor lust for multifamily properties (which in my opinion has nearly run its course due to impending market saturation).  Brooklawn may have been an especially attractive property to the new owner because of the undeveloped parcel.  O’Connell develops, builds, and manages multifamily properties.

Now, this is a flip that I can not give Seymour too much of a hard time about, because it was back in late 2010 that a couple of partners and I sold a similar project in Middletown, Maryland.  It wasn’t but fourteen months later that an unsolicited offer was placed under the new owners’ noses for a cool million + more and the project had another new owner!

The commercial real estate industry is excited about health care real estate as well, for two reasons:  first, because the health care industry continues to grow exponentially, and second, because the full impact of Obamacare remains to be seen.

Tranquility at Fredericktowne is an assisted living facility that was sold in June by Russell Horman’s Premier Health Care to Capital Health Group, a private equity company specializing in making debt and equity investments in the senior housing industry.

Capital Health Group held the property for less than six months, flipping it to CNL Healthcare Trust for a hefty $6 million profit in an $85,100,000 portfolio deal consisting of five assisted living facilities in Maryland and Michigan.  CNL is a publicly-traded REIT focused on senior housing and healthcare real estate.

According to Costar, one of the leading providers of commercial real estate analytics in the United  States, prices for commercial real estate nationwide were on the rise this past year.  Near the end of 2012, CoStar’s value-weighted index finished up 38% from 2010 lows, reflecting “sturdy investor demand for core markets and assets that have been at the forefront of the pricing recovery for commercial property.”

In fact, analysts are surprised at how resilient commercial real estate values have been throughout the recession.  (In comparison to the housing market, that is.)

Commercial real estate investors and REITs spent the recession purging distressed properties from their portfolios.  With capital markets opening up, and high-quality commercial assets increasing in value again, institutional investors should be poised to do some shopping in 2013.

These may seem like eye-poppers, but Frederick has seem other flips in past years that could do more than that … so in the interest of good public health, we will not reveal too many of these at one time … but stay tuned!

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and Want2Dish.com.

A big picture of Frederick County’s commercial market, including the top deals of 2012.

MacRo’s “Top 5 Commercial Real Estate Sales” blog posts are among our most popular with readers.

We decided to do a little something different for the 2012 commercial real estate sales recap.  We love data, statistics, and charts here at MacRo, so we gathered a fairly comprehensive list of the commercial real estate sales recorded in Frederick County for 2012, and sorted them by market segment.

This is an exercise we plan to repeat each January, as a method of tracking trends in Frederick’s commercial real estate market.  In the meantime, what do the numbers reveal in our inaugural year?

Based on the raw data we examined, about $200 million worth of commercial real estate changed hands in Frederick in 2012.

The market sector with the highest number of transactions yielded almost the lowest dollar volume in sales: mixed residential/commercial properties.  There are the small residential-sized mixed-use buildings lining the streets of Frederick City’s historic downtown and the county’s “main street” municipalities such as  the Golden Mile, New Market, Middletown, and Thurmont.

Office and warehouse sales and leasing are the lifeblood of the commercial real estate market here in Frederick, much like everywhere else.

We learned that the Holiday Inn at FSK Mall and the Holiday Inn Express were foreclosed on this past year.  (Were we the last to know about this?)

And of course we ranked the sales to share MacRo’s list of the top 5 commercial real estate sales in Frederick for 2012:

1) $20,910,000            Hilton Garden Inn – 7226 Corporate Court

Hospitality properties were hit very hard by the recession, as evidenced by the foreclosure of Frederick’s own Holiday Inns.  Investors are shedding these properties, and bargain hunters have been snatching them up in anticipation of improved revenues as the economy begins to build some steam.  RAA Management purchased this hotel from LTD Management Company in July.   The hotel is 80,000 SF in size and has 143 rooms ($261.38/SF; $146,244/room).

2) $16,511,000            PNC Bank Building – 110 Thomas Johnson Drive

Greenfield Partners purchased this office building in a portfolio sale worth $161,900,000 from Corporate Office Properties Trust in July.  The building is 122,491 SF in size ($134.79/SF).

3)  $14,642,486           Tranquility at Fredericktown – 6441 Jefferson Pike

Tranquility at Fredericktown was sold twice this past year.  In June of 2012, it was sold to investor/developer Russell Horman for $8,403,079.  He promptly flipped the property in December in a portfolio sale worth $85,100,000 to Capital Health Group.

4)  $9,600,000             Brooklawn Apartments – 1001 Carroll Parkway

Multifamily properties continued to be hot with commercial investors this year, so it’s no surprise that an apartment building made Frederick’s top 5 in 2012. ZOM, Inc., a real estate investment firm in Florida, sold Brooklawn to an investor in Massachusetts in December.  The building is 113,285 SF and has 86 units ($84.74/SF).

5)  $7,150,000             Frederick Brick Works – 184 East South  Street

Frederick Brick Works, Inc. purchased this property in October.  The property consists of a 13,362 SF industrial warehouse building situated on 25 acres of land zoned MU1 ($535.10/SF).

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and Want2Dish.com.

Readers’ favorites in 2012 included Obamacare, the election, and real estate technology.

Happy New Year to our loyal readers of MacRo Report!

Together in 2012 we survived a contentious election, passed Charter Government in Frederick County, and weathered continued global economic malaise.  We covered all of that and then some, and managed to report regularly on the state of commercial real estate in Frederick.

Our readership has steadily increased since MacRo Report was launched in 2010, and during the past year became somewhat more globalized as commercial real estate practitioners throughout the world began adopting social media as a marketing tool.

While we at MacRo have noted that many commercial real estate bloggers are catering to an audience of industry peers rather than clients, MacRo intends to stay true to its mission to report on topics that impact land and commercial real estate values in Frederick County, Maryland.

The U.S.real estate industry as a whole is cautiously optimistic that 2013 will be the best year we’ve seen in nearly a decade.  MacRo Report’s writers intend to stay on the front lines to share what we hope will be good news if the recoveries in Frederick’s commercial and residential real estate markets gain traction.

In the meantime, here is a look back at the most popular MacRo Report posts of 2011, as ranked by total page views in Google Analytics.  Topics include Obamacare, septic legislation, housing, local real estate deals, and real estate technology.

1. Obamacare to Reap Rewards from Real Estate Sales
2. Threats to Those Beautiful Days in the Neighborhood
3. Septic Bill Strikes a Blow at Maryland Agricultural Land Values
4. Top 5 Land Real Estate Deals in Frederick County, Maryland in 2011 | MacRo Ltd
5. Maryland’s New Home Construction Costs about to Rise
6. 6 iPad Apps that Boost Real Estate Productivity
7. The Evolution of Commercial Real Estate Technology
8. 5 Largest Commercial Real Estate Deals in Frederick County, Maryland in 2011
9. Tracking My Missing iPad
10. Frederick County’s Top Five Retail Real Property Deals of 2011

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and Want2Dish.com.

Buyers are out there, but technology has dramatically changed their sophistication and behavior.

In a previous MacRo Report post Finding the Market for Commercial Real Estate, I tackled a frequently asked question:

“I know the market is not what it used to be, but even still … where are the buyers?”

The first step to a successful sale of commercial property in this economy is getting a true sense of market value.  The previous post covered how a pricing gap wider than 5% or so discourages prospective buyers of commercial real estate from making even an exploratory offer.

There is another reason for the perception that buyers seem non-existent these days: with more information available through the internet, there has been a decline in the percentage of physical property tours.

Back in the day, commercial real estate agents would work to generate big buzz about a new listing without revealing much visually about the property.  This more or less forced interested parties to make a call to the broker have a look.

These days, anyone with an internet connection has vast information on property listings, comparable offerings, recent sales, financing, and investment analytics at their fingertips.  The modern real estate buyer is far more educated about the “big picture” than they were even before this recession began.

This has served to more or less remove the “greater fool” variable from the market place and tighten price ranges for property.

As I wrote in my previous post, “While the traditional 20th century physical property tours that many owners and brokers came to count on may be dropping for some sectors of real estate offerings, viewings of those same properties through the multitude of internet commercial listing services, including broker websites, may literally astound property owners.”

Website analytics indicate that MacRo, Ltd. property listing photos, videos, and property brochures are viewed thousands of times, by agents and potential buyers alike.

We know the buyers are out there, and they are actively looking. But this same technology has changed the dynamics of what still remains the commercial real estate industry’s most powerful emotional marketing tool—the property tour.

Today’s buyers tour properties without stepping foot inside: through virtual tours, videos, extensive photographs, floor plans, record plats, Google Street View maps, zoning maps,  income and expense records, demographic and tax office research, etc.

They won’t waste their time physically touring a property until they have a deeper sense of how well the offering will fit their needs. Not unlike shopping for household products on the web, prospective buyers usually won’t take that next step toward requesting a tour unless they get a good “virtual” feel for the property.

Whether the property owner likes it or not, making information available on the internet is now expected by prospects.  When is comes to more sensitive property details, the smart brokers require that the prospects and their agents register by providing contact info, signing a confidentiality agreement and in many cases producing verification that the prospect has the financial capability to acquire the property.

To that end, when appointments are requested, there is a much higher likelihood that there is serious interest in the property from a qualified party … therefore requiring the owner representative to have deep knowledge of the property and relevant market data … not to mention good closing skills.

The traditional form of garnering feedback from prospects has changed as well.  While property tours have always been a critical component of market intelligence, the broker now has mountains of statistical information through website and listing service analytics.

Based on feedback from tours, agents were able to gauge whether a property’s price was in line with the market, or if there was something out of whack with the building or property that curbed buyer interest.  Instead, a large percentage of prospective buyers tour properties from the comfort and anonymity of their computers.  It’s radio silence for agents and owners—no direct feedback to be had.

Using analytics, the broker is able to weigh the number of times a property has shown up in searches against the number of times a prospect has actually viewed the specifics.  This is only one example of how a broker and the property owner use web data to refine a property offering.

Look for continued evolution in the market.  It’s coming fast.  Like everything else, commercial real estate technology is evolving quickly which will continue to accelerate prospective buyers’ dependence on the web as a primary step in their search the right property.

The most interesting to watch will be those who raise the bar on virtual tours. Check out flyer.io to get a taste of what is coming.

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and Want2Dish.com.

If this is a buyer’s market, where are the buyers?

2012 is quickly coming to a close, and once again a robust economic recovery has failed to materialize.

Despite—or perhaps because of—the lingering recession, many commercial and industrial real estate owners who have had their properties on and off the market for some time are getting frustrated by their lack of success, while other properties sell.

And they are asking the same questions:  “Why won’t my property sell? I know the market is not what it used to be, but even still … where are the buyers?”

Sometimes these are not easy questions to answer, because buyers are out there.

Corporate profits are at all-time highs, and interest rates at all-time lows.  Sluggish economy be damned, investors and business owners alike are definitely shopping the market.

While the traditional 20th century physical property tours that many owners and brokers came to count on may be dropping for some sectors of real estate offerings, viewings of those same properties through the multitude of internet commercial listing services, including broker websites, may literally astound property owners.

All well and good, but where the offers?

There are two big issues at play here:

1. The pricing gap between buyers and sellers in the Frederick market is too wide to even begin the process of negotiation.
2. Technology has dramatically changed the sophistication level and behavior of real estate consumers.

Part 1 of this post covers the pricing gap.

Pricing strategies of old often do not apply to a new environment.

Prior to the recession (back in the delusional days of “robust appreciation”), a property could be priced as much as 10% or greater than the market value without discouraging offers from potential buyers.  Now, despite the feared real estate bottom fishers, I believe that gap is very narrow.

Price your property outside of that and you may hear next to nothing from potential buyers.

Business owners fortunate enough to be in the market looking to buy have experienced economic volatility and are hesitant to jump in for fear of further depreciation in commercial real estate.  For them there are two key factors:  the numbers have to work for their business or investment, and they have to be assured that they are not overpaying for the property.

In today’s world, unlike those robust years, real estate is more of a commodity than a prized possession to beat your chest about.  For many real estate owners across the spectrum, this is very hard to accept.

How often does a broker hear the following? “I put my heart and soul into having this structure built just to my specifications. No stone was left unturned, and I will not give this away!”   

Now while the quality of construction is a critical element in a buying decision, flexibility and functionality can be just as critical to a subsequent owner or user.

Serious and unbiased analysis needs to be given to the depth of the market for the variety of potential uses to each property.  The deeper the buyer (and tenant pool), the clearer a true value range can be pin-pointed.  It’s the basic principle of supply and demand.

The economic environment of the last several years has more often than not been weighted heavily in favor of the former rather than the latter, but despite that the dynamics of a difficult market are ever-changing.

More than ever, commercial real estate sellers must think like a buyer by studying comparable properties, zoning issues, access and visibility (to name a few).

So what does all this mean for selling commercial and industrial real estate?

In a nutshell, overpricing can be the kiss of death in this market.  It is critical for the property owners to find and develop a strong and trusting relationship with a commercial real estate professional.

All too often, a commercial property seller will enter a broker relationship with hesitancy, looking at such services as a necessary evil and unwilling to share true intentions.  Not all commercial real estate brokers are the same, so a careful interview process is a vital first step in selecting one who can become that trusted advisor.

Getting a true sense of the market value is the first step … the next is establishing and implementing a marketing strategy using a blend of today’s technology and well as some of those tried and true timeless methods.

In an upcoming post, I’ll cover how technology has dramatically changed behaviors of commercial real estate consumers.

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and Want2Dish.com.