One of the trends in Knoxville has been a steady flow of outside
investment money coming into the commercial real estate
sector. “Most are first time investors to Eastern Tennessee,
private equity and large companies trying to diversify
portfolios,” Adams explains. “They have been priced out of
Southeastern markets like Charlotte, Atlanta, and Nashville;
they like the steady economy we have in Knoxville. That has
been a big driver of our success.”
He adds that in 2015 Knoxville will see investment money
heading toward stabilized office and industrial buildings.
Although it has a population of less than 200,000, Knoxville
boasts three major hospitals, one of which was bought by a
hospital system out of Nashville and will be moving to a new
location. That’s a deal Adams is working, representing the
hospital, which is in the process of acquiring 100 acres west of
downtown, in the “hot” part of the city. The only thing holding
up the deal is the state signing off on the certificate of need,
which should happen by the fourth quarter.
“This move has spurred a lot of spec medical development as
a number of doctor offices are jockeying to create space near
where the new hospital will be,” Adams says.
FROM COAST TO COAST
Life is a bit different in many of the major coastal cities across
the United States, where investment dollars traditionally flow
like a new cabernet poured for a celebration. In the bigger cities
where population growth continues, all commercial real estate
sectors seem to be afire and investment dollars are coming in
from all parts of the globe.
Professional Report checked in with SIOR professionals in
two coastal mega-metros, Miami and Los Angeles, to see how
the economic tides are turning.
“Business is booming,” exclaims Danny Zelonker, SIOR,
CCIM, broker-partner at Real Miami Commercial Real Estate
in Miami, Fla. “In 2014, Miami boomed even more so. Right
now we have under permit over 35,000 condos; the city is
doing a $3 billion revitalization of the port and the city’s 228
million square feet of industrial space is at 4 percent vacancy. I
sold five industrial properties in the prior 120 days.”
“I expect to see that roll continue,” Zelonker adds. “The key is
finding properties. A lot of investors are buying old warehouses
and creating new warehouse space. A Chicago real estate
investment trust just bought an old Winn-Dixie warehouse to
create new product.”
That doesn’t even count hotels, which everyone wants no
matter the size. “My partner sold a 29-room hotel for $11
million,” Zelonker notes.
When asked where all the investment dollars are coming from,
Zelonker reports a good portion of it is coming from overseas.
“We have clients from places like Venezuela, Argentina, Chile,
and Peru calling all the time.”
Since Miami is a key gateway to South America, foreign
capital sources from those countries are not unusual. Adding to
that list is European capital. “I’ve done three deals with French
nationals,” Zelonker adds. “The tax rate is very high in France,
so they are going elsewhere in the world. Miami is one of those
Los Angeles has lagged behind other big U.S. cities in its
recovery, but it is catching up very quickly. Like Miami, the
town is being flooded with overseas investment capital.
“We see a lot of international capital come into Southern
California,” observes Jonathan Larsen, SIOR, regional
managing principal for Cassidy Turley Commercial Real Estate
Services in Los Angeles. “The amount of investment coming
from China in incredible, but it’s not just the Chinese, I’m
seeing investment capital from Europe, Canada, and Mexico.”
Where is all the capital going? Industrial for a start.
“The Los Angeles basin is the largest industrial market in the
country so there is a heavy investment in this category,” says
Larsen. “That would include the Inland Empire, where the cost
to develop is low, but also the interior of Los Angeles, where
the cost of development is high. In Los Angeles, there are a lot
of industrial buildings built in the 1970s’ and 1980s’ and they
are being torn down and rebuilt to be more efficient. There’s a
lot of infill redevelopment.”
Besides industrial, there have been office investments from
West Los Angeles to Pasadena, from Orange County to
downtown Los Angeles. The latter has been the real surprise.
“The millennials who espouse the live-work-play ethos of a
downtown have transformed other American cities and are
now causing a renaissance in downtown Los Angeles,” notes
Larsen. “We have 50,000 people living in downtown, whereas
we used to have just a couple of thousand. Another 50,000
residential units are being built.”
Development has also begun on the Wilshire Grand Center in
downtown Los Angeles, which will be the tallest building in
the United States west of the Mississippi River. Wilshire Grand
will be home to 400,000 square feet of office space and a hotel.
In addition to all that, in an area east of downtown Los Angeles,
an old Ford plant and Coca-Cola bottling facility are being
renovated for tech clients.
“Other hot sections of the metro include Santa Monica/Playa
Vista, where, in the past 18 months, over 450 tech start-ups
have nested,” says Larsen. “A lot of private equity capital is
coming in to fund these start-ups.”
Considering all this, Larsen summed up his thoughts for the
near future in Los Angeles: “Expect a boom in 2015.”