Portland-Area Office Vacancy Increases During Second Quarter

Central City office vacancy increased to 12.73% during the Second Quarter, with negative 242,145 sf absorbed. About 40,000 sf of this negative absorption was from multiple tenants leaving the historic Stevens Building. The Church of Scientology of Portland purchased it in 2008 and planned to inhabit the whole building, but it was found to be unsuitable for the organization and is for sale. This quarter the Church of Scientology bought downtown’s historic Sherlock Building for $6.4 million to serve as its new home. In a highly-anticipated decision, the Portland Development Commission opted to remain at its current location in Old Town (but in 10,000 fewer sf), rather than move to the stalled Park Avenue West, its other primary option. It is uncertain when construction will restart at Park Avenue West, as the project lacks financing. Active tenants downtown include alternative energy groups, who seek environmentally friendly buildings. Many tenants are also seeking moderatelypriced Class A buildings with quality buildouts.

Suburban office vacancy rose about two percentage points to 23.92%, with negative absorption of 179,725 sf. This is the 7th consecutive quarter of negative absorption for the suburbs. Kruse Way saw the most significant increase in vacancy, from just under 23% last quarter to 29.36% during Second Quarter. Kruse Woods V had nearly 100,000 sf of negative absorption, as Northwest Evaluation Association vacated about 108,000 sf to move to the former Port of Portland building in Central City. However, Black & Veatch filled some of the space at Kruse Woods V, leasing about 25,000 sf. Vacancy in I-5 South rose significantly to 28.10%, but some large leases occurred, including State Farm’s lease of nearly 24,000 sf at Fanno Creek Building B. Brokers are seeing a flight to quality in the suburban submarkets, with healthy activity in nicer buildings.

Vancouver vacancy rose slightly to 18.55%, with negative 11,634 sf absorbed. The most significant deal was the $18.5 million sale of The Columbian Building to the City of Vancouver for its new city hall. The 118,000 sf building, previously listed at $41.5 million, was turned over to Bank of America early this year after the Columbian Publishing Co. filed for bankruptcy.

The full report is available here.

Henderson Arranges $4.6M for Snohomish Self Storage

NBS Financial Services' Jeff Henderson has arranged $4.6 million in financing for Snohomish Self Storage in Snohomish, Washington, about 30 miles northeast of Seattle.

Snohomish Self Storage has 707 storage units and 281 RV/parking spaces. It was built in 1999 and sits on about 8.5 acres.

The borrower originally tried to gain financing through two local banks, but was unsuccessful. After contacting Henderson, he utilized NBS Financial’s Strategic Alliance Mortgage (SAM) network to find lenders interested in financing the property. NBS Financial is a member of SAM, whose goal is to combine local expertise, while leveraging a national platform with 20 other select mortgage banking firms across the country, to provide a broad reach of capital from local, national and international sources.

Arranging financing for self storage is considerably different than for other commercial property.

“Many lenders look at self storage as more of a business than real estate, which may be a deterrent to lending,” Henderson said. “Having so many RV and parking spaces was also a challenge. We had to dig deep to find the right match for the borrower.”

June Market Watch: State of the Commercial Real Estate Market

A recent quarterly survey by Real Estate Roundtable suggests the commercial real estate market is beginning to stabilize. The group surveyed more than one hundred senior real estate executives for its quarterly report. 82 percent believe market conditions today are better than they were a year ago and seventeen percent characterized conditions as “much better.”

Roundtable CEO Jeffrey DeBoer said, “Clearly, the sense of gloom that prevailed a year ago has eased, property values no longer seem to be in a free-fall and market participants are feeling more confident.” The survey also noted that financing can be challenging for some properties, as defaults are still rising. Transaction volume is down 80 to 90 percent and values are down nearly 50 percent in some markets. “What’s needed now is robust job creation, more equity and restoration of secondary market financing so that banks can clear their balance sheets of toxic assets and begin lending again to credit-worthy borrowers," DeBoer said.

In mid-May, Marielle Jan de Buer (CMBS) and Thierry Perrein (REITs) hosted roundtable discussions in New York and Boston about the current state of commercial real estate lending. Below are some highlights:
• The tone in the debt markets has changed dramatically in the past two quarters; liquidity is flowing back into the market.
• There has been an increased appetite for commercial real estate loans in general.
• Sponsors are refinancing (instead of extending) and recapitalizing while acquisitions are heating up.
• Competition among lenders is increasing-spreads are coming in.
• Life insurance companies and banks are fi lling the void left by CMBS.
• Life insurance companies have targeted $32 billion of origination in 2010 (up from $18 billion in 2009).
• The overall resurgence in the capital markets coupled with the lack of available product has led to greatly improved pricing and leverage.

As the economy and the commercial real estate markets continue to improve, NBS Financial Services is consistently quoting and closing loans for well located, cash-flowing real estate at the 65-75 percent loan to value levels. Our lenders have money to lend and see the Pacific Northwest as one of the strongest markets in the country to invest in. Rates are still near historic lows. Call us today to secure financing for your apartment, office, retail, or industrial property.

Issues Affecting Commercial Mortgage Rates:
• Lukewarm treasury auctions throughout the month as European economic crisis looms.
• The recent move in Treasury rates caused swap spreads to widen as rates fell across the yield curve.
• Loan sales market is booming, $2.6 billion of loans on the market for sale through the end of June.
• Increase in loan demand last 60 days (balance sheet and CMBS execution).

What is Strategic Alliance Mortgage (SAM)?

NBS Financial Services is a member of Strategic Alliance Mortgage (SAM), a unique network comprised of 23 individually owned commercial real estate investment banking/mortgage banking firms located throughout the United States.

The goal of SAM is to combine local entrepreneurial expertise with a nationwide network to deliver the very best capital markets execution and alternatives to its clients.

Formed in 1998, SAM has grown to become a viable new business model for the commercial mortgage banking industry. SAM members are at the cutting edge of technology, utilizing a web-based system to communicate, share ideas and catalogue capital market participants, information and trends. SAM is unique in that it puts a local owner/expert in the middle of each transaction armed with national capital markets expertise that is second to none.

SAM STATISTICS
Production: $67 billion since 2003
Servicing: $31 billion
Producers: 146 commercial originators

A Few Articles of Interest

Seattle keeps on raking in the national recognition. Kiplinger recently ranked Seattle No. 2 on its "10 best cities for the next decade" list. It looked for cities that are innovative and have lots of out-of-the-box thinking. The article looks at Seattle's strong industries, like aerospace, life sciences (health), and clean tech.

Also, the CoStar Group had an article on commercial real estate lending and the recent Mortgage Bankers Association (MBA) quarterly survey. Commercial/multifamily loan origination reportedly increased 12% year-over-year for First Quarter, but was about a quarter lower than Fourth Quarter 2009. It appears that lending is loosening for office and retail properties, and there was a 131% increase in loans for life insurance companies.

Policom Says Seattle Metro Area has Nation's Strongest Economy

This week Policom Corp., an independent economics research firm based in Palm City, Florida, that specializes in analyzing local and state economies, released its annual economic strength ranking, which indicated that the Seattle metropolitan area has the strongest local economy in the nation.

"The rankings do not reflect the latest 'hotspot' or boom town, but the areas which have the best economic foundation," Policom President William Fruth said. "While most communities have slowed or declined during this recession, the strongest areas have been able to weather the storm."

The study measures 23 different economic factors over a twenty-year period to create the rankings. The formulas determine how an economy has behaved over an extended period of time. Data stretching from 1989 to 2008 was used for this study. Metropolitan areas must have a city of at least 50,000 people and typically encompass more than one county.

The Top 10 out of 366 metropolitan areas are:
1. Seattle-Tacoma-Bellevue
2. Washington, D.C.-Arlington,VA-Alexandria, WV
3. Denver-Aurora-Broomfield, CO
4. Houston-Sugar Land-Baytown, TX
5. Sacramento-Arden-Arcade-Roseville, CA
6. Salt Lake City, UT
7. Des Moines-West Des Moines, IA
8. San Diego-Carlsbad-San Marcos, CA
9. Madison, WI
10. Dallas-Fort Worth-Arlington, TX