Archives for February 2015

Optimism was in the air in early 2007 when preliminary plans got underway for a four-story housing project a block south of Central Avenue at the east end of Nob Hill.
“Over the next decade, you’re going to see the entire landscape in that area change,” Chicago-based developer Rick Goldman told the Journal in an article from February of that year.
Goldman was a pioneer in Nob Hill redevelopment in the mid-2000s with his 20-townhome first phase of Aliso Nob Hill fronting Morningside Park, a few blocks east of Carlisle SE. He had just begun construction of Aliso’s second phase when he announced the four-story project just up Silver Avenue.
Then the Great Recession happened.
“The bottom fell out,” he said last week. “We hunkered down and waited out the storm. That’s what everybody did. It wasn’t an Albuquerque thing, it was a nationwide thing.”
Flash forward eight years and that four-story housing project, now called Platinum Apartments, is the first new infill development of the 2010s in what’s called “emerging Nob Hill,” the area straddling Central from Carlisle east to Washington.

Although the project was officially undertaken by a limited liability company, Goldman said the developer is Golden Spike Development, which he co-founded in 2004 with partner Ike Hong. The city building permit puts the construction value at just over $6.1 million.
The 60,000-square-foot building, which is scheduled for completion in July, will have 75 apartments ranging in size from 565 to 1,352 square feet on the upper three floors. The ground floor will be gated and have 74 parking spaces, plus the leasing office, a fitness center and other common space.
All the apartments will have a balcony or porch, a washer and dryer, Energy Star-rated appliances and high-end finishes, said Carlos Conroy, project manager for Pavilion Construction, the Oregon-based general contractor that’s made a name for itself in New Mexico by building low-income housing tax-credit projects.
Platinum Apartments is market-rate, meaning it will have no income restrictions on tenants like a tax-credit project, prompting Conroy to say, “We’re diversifying our job portfolio here with this project.”
Fundamentals stay strong
With an address of 4100 Silver SE, the 0.85-acre site spans a full block between Sierra and Montclaire. The property was assembled from three parcels, giving it a size that’s rare in an old, established neighborhood like Nob Hill, Goldman said.

The intervening years between late 2007 and early 2013, when the project was rebooted, saw lending disappear for speculative commercial real estate projects, causing the five-year delay in the project, Goldman said. The four apartments and a small office building on the half-vacant property at the time were leased.
“It wasn’t long after the thaw in the banking industry that we were at it,” he said, noting that the passage of those five years hadn’t changed his optimism.
“The fundamentals have remained strong despite the ups and downs of the economy. We always felt good about the access of the site and the overall strength of the location,” he said.
A project like Golden Spike’s four-story apartment building wouldn’t have been possible 10 years ago because of height restrictions. The passage of the Nob Hill Highland Sector Development Plan in 2007, subsequently amended, allows taller buildings in the Central Avenue corridor.
“That was a pretty seminal moment,” Goldman said.
Platinum Apartments has a building height of 54 feet, which compares to 45 feet for CenturyLink’s switching hub for phone calls a couple blocks north at 120 Sierra NE. Built in 1960, the switching hub was the tallest commercial building in Nob Hill’s Central Avenue corridor.
In early January, the city of Albuquerque received proposals from private developers to redevelop the now-derelict De Anza Motor Lodge at 4301 Central NE, a little over three blocks away from Platinum. Built in 1939 and purchased by the city in 2003, the 2.1-acre De Anza site has some historical significance.
The submitted proposals won’t be made public until they’re presented to the Albuquerque Development Commission in early March.
Depending on how the redevelopment proposals are structured financially – specifically whether government subsidies are involved – the De Anza redevelopment will likely involve some demolition of existing buildings and construction of a new four-story building or buildings.

Energy efficiency
Goldman said Platinum Apartments is the first market-rate apartment built as urban infill in Albuquerque since the 198-unit Albuquerque Uptown Village at 2222 Uptown Loop NE opened in 2009. Located in an employment hub with plenty of shopping nearby, Uptown Village is widely considered a major success.
“Uptown Village has consistently outperformed both its submarket and the Albuquerque apartment market in general,” said multifamily broker Billy Eagle at commercial real estate services firm CBRE, who tracks the apartment market.
“Since 2009, its average occupancy has been 97 percent and rents have continually set the bar in Albuquerque due to its superior location, amenities and walkability,” he said.
Goldman expects Platinum Apartments to score the same level of success. Platinum’s name was inspired in part by the fact it is designed by Environmental Dynamics Inc., often shortened to “edi,” to achieve platinum certification from the U.S. Green Building Council’s Leadership in Energy and Environmental Design program.
The green, energy-efficient design starts with the building site’s orientation toward the sun, explained Environmental Dynamics principal Stace McGee.

What is the fundamental issue?

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) proposed lease accounting changes that would reduce the overall borrowing capacity of many commercial real estate lessees and lessors. The proposal would bring nearly $1.3 trillion in leased assets back onto companies’ balance sheets, with roughly 70% being real estate leases. Under the proposal, companies would be required to use a “right-of-use” accounting model where both lessees (renters) and lessors (property owners) recognize assets and liabilities arising from lease contracts. Currently, accounting rules allow many businesses to classify leases as operating expenses, which do not appear on their balance sheets. Both FASB and IASB believe these changes would improve transparency as well as provide investors with more consistent and concise financial reporting. However, if enacted, this proposal could negatively impact the financial stability of many businesses, which could prolong our nation’s economic recovery.

I am a real estate professional. What does this mean for my business?

If ratified, this proposal would hurt businesses of all sizes, especially lessees and lessors of commercial real estate. With more bloated balance sheets, some companies may see their debt-to-equity ratios increase and find it more difficult to obtain credit, especially those with heavy debt loads or still recovering from the recession. The proposed accounting changes could also complicate compliance with debt covenants or agreements between the bank and borrower, which usually prohibit companies from borrowing more than they are worth. By capitalizing new and/or existing leases, some businesses could show more debt than allowed in their agreement with the lender, and therefore be in default of their loan.  This could force some firms to put up more capital for existing loans or even have their credit lines revoked.

Additionally, the elimination of off-balance-sheet financing would be detrimental to commercial property owners. More frugal lessees will want less space and shorter-term leases without renewal options or contingent rents, which will decrease cash flow for property owners. Shorter-term rents will likely reduce the borrowing capacity of many commercial real estate lessors, who rely on leases and the value of the property as collateral in order to obtain financing. Ultimately, property owners would be forced to increase rent rates due to market uncertainty and reduce tenant improvements due to shorter recovery periods. Conversely, this change could encourage some firms to consider buying instead of leasing commercial real estate.

NAR Policy:

NAR believes the new lease accounting proposal will be detrimental to our nation’s economy. Also, NAR is opposed to lease accounting standards changes that would treat the income producing real estate business as a financing business on company balance sheets.

The new lease accounting proposal reduces the overall borrowing capacity of many commercial real estate lessees and lessors, by requiring them to recognize leases on their balance sheets as liabilities and assets, as opposed to their current treatment as operating expenses, which are not reflected on balance sheets. Including leases on balance sheets may have the effect of “bloating” them, and some companies may see their debt-to-equity ratios increase as a result, making it more difficult for them to get credit. Treating income producing real estate business as a financing business on company balance sheets will not accurately depict the unique characteristics of the investment real estate sector and in turn discounts the usefulness of the industry’s financial statements.

Opposition Arguments:

Opponents of NAR policy believe that real estate should not get special treatment over other asset types.  Thus, they believe, all assets, including real estate should be reflected on company balance sheets.

Legislative/Regulatory Status/Outlook:

FASB/IASB will likely finalize their proposal in early 2015. The effective date of this proposal will likely be in 2018, where virtually all new and outstanding leases would be subject to the new accounting standard. In August 2014, the FASB and IASB announced that they have not been able to come to an agreement on the lease accounting proposal, with the FASB pursuing a dual-model (allowing leases to continue to be listed as either operating expenses, off the balance sheets, or capitalizing them onto balance sheets), and the IASB continuing to pursue a single lease accounting standard. If the organizations cannot come to an agreement, the FASB approach, which is more favorable as it allows leases to continue to be classified as they always have been, will control in teh U.S. NAR continues to work with FASB/IASB and other stakeholders to ensure that any modifications to lease accounting rules will not negatively impact commercial real estate practitioners.

Current Legislation/Regulation (bill number or regulation):

No actions at this time.

Timeline:

Here is a comprehensive timeline of the issue and associated legislation: Timeline

Video:

Here is a video interview that NAR produced to update members on the status of the lease accounting project.

The topic of right to work generates much discussion these days about whether it is worthwhile for New Mexico to adopt this type of legislation. Unfortunately, a lot of the dialog misses the point and focuses on the wrong questions.
The reason to adopt right to work is because New Mexico needs jobs – lots of them. We need to pull our population out of poverty. We need to create opportunities that will keep our children in New Mexico.
Jobs and more job opportunities are the best way to accomplish that.
The site selection industry, those people whose job it is to help companies pick new locations, often use right to work as a screening factor for their clients to eliminate locations and to narrow choices. If a state doesn’t check the box that says they are a right-to-work state, an estimated one-third to one-half of relocating or expanding companies simply will not consider that state in their location choices.
New Mexico has a great story to tell, and many companies that have moved here can and do attest to that. However, if they won’t even consider us, we lose the opportunity to tell that story.
We lose jobs.
Right-to-work legislation won’t be the solution to all of our state’s problems. It’s not a silver bullet. A location’s workforce – its quality, cost and availability – is a major factor in a company’s site selection decision.
And, New Mexico needs a deeper, qualified labor pool to be competitive.
On-the-job experience is one of the best ways of improving the quality and availability of the workforce. Were we able to attract more companies, our citizens would be able to find more employment opportunities here in New Mexico versus going out of state.
We want to stress that we do not propose right to work as an anti-union strategy. right to work does not prevent workers from unionizing or joining unions.
What it does do is give the worker the choice of not paying union dues if they do not wish to join the union. In turn, the National Labor Relations Act allows unions to negotiate contracts covering only dues-paying members.
As with any membership organization, unions depend on dues to operate and pursue their goals. Likewise, as with any membership organization, it will be up to unions to demonstrate their value in order to gain and retain members.
In trying to create better opportunities for all New Mexicans, we need an all-out effort to make ourselves as competitive as possible for attracting new jobs. Right to work is only a piece of the solution.
Part of that effort must include fixing our education system. Another part must be improving our tax code.
Similarly, we need robust economic development incentives such as the proposed $50 million Job Creation Fund unanimously endorsed by the bipartisan New Mexico Legislative Jobs Council.
All of these are steps toward attracting more employers to New Mexico, steps to diversifying our economy.
The beauty of right-to-work legislation is that is does not have a cost to taxpayers, does not require any expenditures of our state reserves, or even any part of the state’s annual budget. It is however, another important economic development tool that can bring more potential jobs to our doorstep.
By: Kurt Browning (Albuquerque Journal)
Click here to view source article.

Thanks to all of the brokers, sponsors and guests who attended the February 2015 CCIM Deal Making Session and to those who shared the February 2015 CCIM Properties. Over 15 million dollars of commercial real estate properties available for sale were presented from all over New Mexico.

Brett Hills & Calder Conrad	700 S. Salano Drive	$185,000
Martha Carpenter	3900 Georgia Street NE	$980,000
Anne Apicella	1133 Dakota Street SE	$325,000
Walt Arnold & Larry Ilfeld	100 N. Guadalupe	$3,095,000
Anne Apicella	141-155 Wyoming Blvd NE	$482,200
Gannon Coffman	SWQ Camelot Blvd & Golden Gate Drive	$386,976
Martha Carpenter & Anne Apicella	4290 Corrales Road	$405,000
John Henderson	1001 Coal Avenue	$2,300,000
Coralee Quintana	427 Isleta SW	$589,000
Gannon Coffman	3485 Main Street	$283,500
Coralee Quintana	6616 Central Ave SE	$499,000
Gannon Coffman & Keith Meyer	SEQ NM Hwy 6 & Los Cerritos	$6,142,613