Archives for April 2022

Renewable generation is now powering up nearly nine-tenths of all government operations in Albuquerque, following the inauguration of a new, 50-megawatt solar array at the Jicarilla Apache Nation.

Mayor Tim Keller joined with public officials from Deming and Silver City, and from Santa Fe and Grant counties, to celebrate the plant’s opening on Earth Day last Friday. All five local governments helped fund the project – along with Deming Public Schools, Western New Mexico University and Walmart – through a first-of-its-kind public-private collaboration with Public Service Company of New Mexico.

Under that partnership, dubbed the PNM Solar Direct program, the utility will distribute all electricity generated among the participating entities, helping them achieve renewable goals while lowering their long-term power costs.

For Albuquerque, the newly inaugurated plant – combined with other rooftop solar systems built by the city in recent years – is now supplying 88% of government electricity, Keller said during last Friday’s celebration at La Fonda hotel in Santa Fe.

“It’s a landmark, transformational project for the city,” Keller said. “It makes us the fourth most-solar government of any city in the country.”

Keller set a goal of 100% renewable energy for city operations when he first took office in 2017.

That ushered in accelerated development of rooftop systems, solar-equipped parking structures, energy efficiency retrofits at city buildings, adoption of electric vehicles and construction of charging stations.

But to reach 100% renewables, the city needed a utility-scale project, Keller said. And it needed partners to pursue it, which the Direct Solar program offered.

“We needed a giant solar plant, not just rooftop systems, so we partnered with PNM and others,” Keller said. “That’s what it takes – the community coming together in a full-ranging partnership. … That’s allowed us to move much, much faster.”

The facility is located on some 500 acres at Jicarilla, which already had a transmission line connecting to PNM’s grid, lowering project costs.

There are no property taxes at Jicarilla, but the tribe will receive $1.5 million in land lease payments for hosting the plant, which is now the third-largest utility-scale solar array currently operating on tribal lands in the U.S.

Spanish energy company Repsol built the facility, marking that firm’s first solar development project in the U.S., Chief Operating Officer Federico Toro said at Friday’s celebration.

“It will supply enough electricity to power the equivalent of 16,000 homes,” Toro told event participants.

Repsol is now under contract with PNM to build a second 50-MW solar array with 20 MW of backup battery storage at Jicarilla. The company broke ground in mid-April on that project, which is one of four solar facilities PNM plans to replace the coal-fired San Juan Generating Station after it shuts down later this year.

Taken together, those four planned solar facilities, which are of different sizes, will provide a total of 600 MW of renewable generation, with 300 MW of backup battery storage.

Source: “50-MW Solar Array Sending Power to ABQ“

Occupancy rates throughout the retail real estate industry have ticked up in recent months, leaving the sector on its best footing since before the pandemic.

Retail properties of all types, from grocery-anchored centers to enclosed super regional malls, have experienced a burst of leasing activity over the past 12 to 18 months. And even the most pessimistic real estate experts contend that the deal flow reflects the retail industry’s recovery.

Preliminary data for the first quarter indicates that retail tenants absorbed 91 million sq. ft. nationally during the prior year-long period, according to Marcus & Millichap. The real estate firm says March 2021 to March 2022 was the strongest 12-month span in terms of absorption in nearly five years.

“There’s just not enough vacant retail space,” says Drew Barkett, executive vice president of DeBartolo Development. “It’s becoming a bidding war out there.”

DeBartolo currently owns two vastly different retail properties: Ka Makana Ali’i, an 859,000-sq.-ft. regional shopping center in Kapolei, Hawaii, on the island of Oahu, and Seven Oak Plaza, a 78,0000-sq.-ft. neighborhood center in Wesley Chapel, Fla., outside of Tampa.

“Ka Makana Ali’i is just crushing it,” Barkett says, adding the center is more focused on daily needs and year-round residents instead of relying exclusively on tourism. Anchored by Foodland Farms and 24 Hours Fitness, the project offers more than 120 shops and restaurants, along with a theater, lifestyle center, and a limited-service hotel.

Ka Makana Ali’i’s leasing is handled by JLL’s Retail Agency Leasing Group, which saw leasing activity increase by more than 600 percent across its 80-center portfolio from 2019 to 2021. Last year, the 25-person team secured nearly 200 new deals across all center types and classes of properties.

“The leasing activity that our team is seeing signals a larger retail recovery,” says Paul Chase, executive vice president of retail agency leasing for JLL. “Retailers have gotten smarter throughout the pandemic.”

The firm’s fourth quarter 2021 United States Retail Outlook reports an increase in occupied retail space totaling 76.1 million sq. ft., a meaningful reversal from the negative 28 million sq. ft. posted in 2020.

“Retail leasing activity is incredibly strong at our properties,” says Daniel Goldware, senior vice president of leasing for Trademark Property Company, which owns 17 mixed-use properties totaling about 10.7 million sq. ft. across the country including the high-profile Galleria Dallas and First Street Napa. “The pandemic proved that the physical store is more valuable than ever.”

In a recent McKinsey & Co. poll, senior executives from 10 of the largest North American retailers said they had experienced significantly higher e-commerce growth in sales areas with a physical presence compared to those without any brick-and-mortar stores. Additional research from McKinsey indicates that 60 to 70 percent of consumers across categories research and shopping both in stores and online.

Store-based retail sales, which excludes online purchases and spending at restaurants and bars, represented nearly two-thirds of all retail sales in March, the largest proportion this year, according to Marcus & Millichap. The firm says the 2.1 percent rise in store-based spending recorded last month suggests a rise in foot traffic in physical stores as health conditions improve and mandates are lifted.

“People want to be out and about,” says DeBartolo’s Barkett. “They want to see and touch items in the store. They want to enjoy dinner out with friends and family.”

Data provides more certainty

Retail tenants today are approaching leasing differently than they did pre-pandemic. Instead of blanketing a market with dozens of new stores, these companies are relying on data to help guide their leasing decisions. This more methodical approach means fewer, more targeted stores that cater to their shopper demographic. The sector has also been helped by high demand from health and wellness tenants for traditional retail locations.

“Tenants now have access to data that tells them which locations are going to be good for them and which locations are not,” says Sandy Sigal, chairman, president and CEO of Woodland Hills, Calif.-based NewMark Merrill Companies, which owns and manages more than 10 million sq. ft. of retail assets in 85 cities. “This certainty has made them more confident in making leasing decisions. Last year was a record leasing year for us, and this year will be another record year.”

Over the past 12 months, more stores have opened than closed, according to CBRE. In fact, after 70 retailers declared bankruptcy in 2020, the retail sector is now seeing the lowest levels of bankruptcy filings in the past five years.

Of NewMark Merrill’s 2,000 or so tenants, the firm lost 60 during the pandemic, or roughly 3 percent. “What does that tell you about retail tenants and their unbelievable hustle to adapt and survive?” Sigal says. “Frankly, I’m shocked at how good of entrepreneurs they are.”

Rental spreads widen

For retailers and restaurants that were already struggling prior the pandemic, COVID-19 was the proverbial straw that broke the camel’s back. Sigal estimates that at least half of the tenants that left his properties would have closed regardless of COVID-19.

Most landlords view this “culling” as a positive. They’ve been able to fill their centers with new, stronger tenants and deals leases at higher rental rates than previous leases.

Consider Phillips Edison & Company Inc.: the Cincinnati-based REIT’s portfolio, which consists of 268 properties totaling roughly 30.7 million sq. ft. across 31 states, reached record occupancy at the end of the 2021, according to financial filings.

PECO’s leased portfolio occupancy increased to 96.3 percent at year-end 2021, compared to 94.7 percent at year-end 2020. The REIT saw occupancy tighten for both anchor and inline space: anchor occupancy totaled 98.1 percent compared to 97.6 percent for the same period, while inline occupancy totaled 92.7 percent versus 88.9 percent.

In 2021, PECO executed 1,135 leases (new, renewal, and options) totaling about 5.6 million sq. ft. In comparison, it inked 861 leases executed totaling roughly 4.7 million sq. ft during 2020.

PECO saw its rent spreads increase significantly in 2021. New leases jumped 15.7 percent, while renewals were up by 8.1 percent for renewal leases (excluding options). Combined, new and renewal leases increased 10.1 percent.

“As an owner of grocer-anchored retail centers, we’ve come through COVID better than we expected,” says Ron Meyers, PECO’s senior vice president of leasing. “We’re seeing high demand from a wide variety of tenants and uses. Medical tenants and restaurant operators are particularly active.”

Source: “Does Increased Leasing Activity Signal Recovery for Retail Sector?“

With so many factors at play, getting a clear call on the immediate future is next to impossible.

Where are lumber markets going? Some insist prices will be up this summer, some say maybe down a bit. The only certainty is its lack, and that lack of clarity is in abundance because today’s lumber market is unlike previous incarnations.

Currently, spot prices are just over $1,000 per thousand board feet. Futures markets, the bets on where prices will land over the next few months, closed out last week at $935.60. It would sound like prices were heading down. But, again, current conditions are causing a lot of cloudiness in crystal balls.

“There are so many extenuating factors going on,” Mike Wisnefski, CEO of MaterialsXchange tells GlobeSt.com. These include supply chain issues, the Russian-Ukraine War that has resulted in sanctions and an effective end to lumber exports from Russia.

If transactions are completed, that would be bullish for prices. But China is also closing down entire cities because of another Covid wave. So, is that less demand and lower prices, or higher prices because the building products and goods coming out of China now have to be replaced? “The NorthAmerican wood is going to stay here,” Wisnefski says.

Housing starts are up, but mostly multifamily which should mean heavy usage, as Wisnefski says one multifamily unit uses less than a 5,000 square foot house, so that might mean more efficient use. Then again, there’s a heavy number of homes under construction, many waiting for delayed components to count as finished. Once available, that could satisfy some consumer demand and reduce pressure on building, some ameliorating prices.

Has this started to sound like the scene in The Princess Bride where the character Vizzini tries to get which cup of wine is poisoned? To massage a movie quote slightly, “Wait till we get going!”

Alex Meyers, chief operating officer of Micky Group, thinks prices are going to head upward, at least to some degree, not due to lack of supply. Sawmills have plenty of material. The issue is transportation.

“Lumber availability is down but lumber available to ship is really high,” Meyers says. “There are not enough trucks to move the lumber, primarily 2x4s and building materials.” The culprit: a shortage of flatbed trucks that are the preferred form of transport. Availability of trucks is “horrible” and expensive, he adds.

In addition, because of Covid in China, there’s a bottleneck in Shanghai, a major supplier of kitchen cabinets, flooring, and architectural millwork. “I personally believe that’s going to keep things tight,” says Meyers. And when the ships arrive? “When you finally start to see the import containers, we’re going to see logistics problems.” Again.

“And this is all until when the next blender comes up. What’s the next logistics play? What’s the next covid outbreak? What’s the next supply chain woe that will throw off our projections here?”

Which is why so many in the industry don’t want to guess where the number will land. At this point, no one really knows.

Source: “Lumber Prices Heading Up This Summer … Or Not“

But values are still at a near record high.

After 17 straight months of increases, the headline rate for US commercial real estate property price growth finally slowed between February and March 2022, according to Real Capital Analytics. The company’s CPPI national all-property index dropped 0.4% was the first month-over-month decrease since June 2020.

However, the index was still up 17.4% over the previous year. A one-month change doesn’t indicate an ongoing trend.

“This pace of growth would be fantastic in any normal period, but it is no longer climbing at the average 300 bps of additional growth each quarter seen since Q4 ’20,” the report explained. “Some element of this deceleration in price growth is a function of the easing of fear that dominated with Covid-19. It is not clear how much of the deceleration is due to the economic challenges arising in March of this year.”

The RCA CPPI (Commercial Property Price Indices) are based on transactions and RCA claims they “accurately measure commercial real estate price movements using repeat-sales regression methodology.”

Year-over-year growth rates vary significantly by property type. The top market was delivered by industrial and 30.1% growth. But quarterly growth has been slowing for the category from the peak of 8.1% during each of the last four months. Apartments took second place with an 22.4% increase.

Office was at the bottom of the stack, with central business district locations showing 7.5% growth and suburban, 9.3%. “The spread between suburban office and CBD office growth has narrowed since its peak in Q3 ’21, as suburban office price increases have weakened and CBD prices have strengthened,” the report noted.

Although it had been challenged during the pandemic, retail was up 14.6% over the last year.

RCA tracks a group of six major metros—Boston, Chicago, Los Angeles, New York, San Francisco, and Washington DC—and groups all secondary and tertiary markets together as non-major metros. The former was up 12.7% year-over-year and 0.4% between February and March. The non-major metros had an annual jump of 18.8%, likely explained by demographic shifts that have strongly influenced property markets, especially in the Sun Belt and West. However, that group was down 0.4% from February.

Perhaps a more interesting comparison, though, is a three-year look, which provides a pre- versus post-pandemic snapshot. Industrial and apartment were again numbers one and two, with 57.8% and 47.6% respective growth. Retail saw an 18.7% lift. Central business district and suburban office saw gains of 10.2% and 20.1%. For major and nonmajor metros across all types, growth was 23.8% and 39.5%.

Source: “CRE Property Price Growth Slows for the First Time Since June 2020“