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Majestic Realty is Bringing another Massive Spec Building to Aurora

September 11, 2017

 

 

Majestic Realty is Bringing another Massive Spec Building to Aurora

Breaking its own records for new, mammoth-sized industrial buildings in Colorado is becoming a routine for Majestic Realty Co. The company’s latest local project — nicknamed Big Bomber because it’s big – will bring 701,900 square feet of warehouse/distribution space to Majestic Commercenter, northeast of Interstate 70 and Tower Road in Aurora. Majestic started construction in June with no tenants identified. That makes the project the largest speculative warehouse ever constructed in Colorado, company officials say, breaking the record previously held by a 523,260-square-foot building Majestic is now finishing in the same park. (Majestic completed a then-record 500,000-square-foot spec building in 2014.)“There is a little more risk when things gets to this size,” Majestic executive vice president Randy Hertel said. “That’s really what Majestic does in all of the markets we are in. We trying to produce the largest square footage a market could lease and that we feel comfortable building.” Market data suggests that Big Bomber — scheduled to be complete early next year — is no wild gamble. Metro Denver’s industrial vacancy rate was 5.4 percent in the second quarter, according to CBRE. It was 5.2 percent for the “airport” submarket where Majestic Commercenter is located. Including Big Bomber, 2,984,491 square feet of new industrial space was under construction in the airport area at the end of the second quarter. The report showed 1.4 million square feet of spec industrial space was completed in the second quarter across metro Denver — 79.2 percent of which was preleased. The northeast part of the metro area has been a strong area for new industrial space for more than 15 years, said Tyler Carner, a senior vice president in CBRE’s industrial group.“They’re building a building that is very well situated for where the demand is in the market,” Carner said. Majestic’s previous spec record is part of an 834,580-square-foot, three-building project. Still a few months away from completion, the project is 64 percent leased, Hertel said. Keystone Automotive Group is taking 215,000 square feet there; Electrolux Corp. has signed on for 167,000 square feet; Quality Custom Distribution Services will occupy 155,000 square feet; and Shamrock Foods is moving into 85,000 square feet.“Here in the Denver-Aurora market, just the number of deals that are in excess of 100,000 square feet has increased dramatically since we came to town back in 1995,” Hertel said. “E-commerce was an unknown commodity two years ago. That really has been the game changer.” Last year, Majestic supplied the e-commerce giant Amazon with its first Colorado facility — a spec-built, 452,400-square-foot warehouse in the Commercenter. (Amazon now is building a 1 million-square-foot fulfillment center in Aurora’s Prologis Park 70 office park, about 5 miles to the east, and a three-story, 855,000-square-foot fulfillment center at the northeast corner of Interstate 25 and East 144th Avenue in Thornton.) Majestic has built about 5 million square feet of industrial space at Commercenter since 1996. Fifty companies — with a combined 3,000 employees — are there today. Majestic owns roughly 900 vacant acres in the area, Hertel said.“They been a very steady performer,” Aurora Mayor Steve Hogan said. “The evidence has shown, when they say they are going to do something, they do it.” (Denver Post)

 

 

 

CMBS Market Strengthens in Second Half of 2017, Despite Market Fears

Prior to December 24, 2016, when the Dodd-Frank Act’s risk retention rules went into effect, CMBS lenders and borrowers anticipated that these regulations might run small lenders out of the market, cause lenders to become overly conservative and make it increasingly difficult to find financing for commercial real estate transactions, especially in secondary and tertiary markets. Despite these less-than-optimistic predictions for the market, CMBS loan volume has gradually increased and the market has remained steady throughout 2017 thus far. In fact, CMBS issuance reached $38.8 billion at the end of the second quarter, according to CBRE. The biggest change in the CMBS market following the implementation of the new risk retention rules, which require originators to hold five percent of the loans they issue as opposed to selling them off as bonds, has been the move towards more conservative underwriting. As these lenders are now pricing their deals with risk built-in, the cost of the capital has slightly increased, but not by upwards of 25 basis points, as was predicted. CMBS spreads today are 5 to 10 basis points higher. Smaller lenders that initially feared that the changes caused by the risk retention rules would completely run them out of the market have seen their fears proven to be false. According to Trepp, 21 lenders have participated in the market at of the end of the second quarter. We continue to see smaller lenders operating in the CMBS market, despite the restrictions of the Dodd-Frank Act, and expect more small lenders to enter the market by the end of the year. That said, borrowers and mortgage brokers have been slightly more inclined to work with larger institutions, such as Wells Fargo and Bank of America. These financial institutions deal in larger loan volumes, making them better-suited to address the risk retention rules and provide borrowers with certainty of execution. Borrower interest for CMBS loans and the availability of capital is also continuing to increase, further signifying a strengthening CMBS market for the second half of the year. CMBS issuance is predicted to reach a total of $70-75 billion by the end of the year, which is in line with the volume of issuance in 2016 and steady considering historical values. While there has been some pullback in certain secondary and tertiary markets believed to be higher-risk, the sufficient availability of capital coupled with competitive rates have made CMBS loans more attractive to borrowers in many cases. The climbing number of originated loans at the beginning of 2017 points towards a trend that will likely continue throughout the rest of the year, even with the added pressure of risk retention rules. Borrowers are still relying heavily on CMBS loans to finance commercial assets. Finally, there was also concern regarding the wall of CMBS maturities and how this would affect issuance in 2017. However, at the completion of the second quarter, it does not seem to have affected the market substantially. Even with billions still set to mature by the year’s end, lenders want to increase originations. Moreover, many borrowers with loans that matured this year refinanced at much lower rates than the relatively high interest rates prior to the downturn in 2006 and 2007. Ultimately, the fear that borrowers and lenders had at the beginning of 2017 has proven to be largely unwarranted. Although we have seen some slight changes from lenders in their underwriting and the way they are pricing deals, the CMBS market remains a viable capital source for many owners and investors. In the next half of the year, we anticipate a healthy CMBS landscape. (National Real Estate Investor/Mitch Paskover)

 

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Could Amazon Build HQ2 in Colorado? Sure, but it Would be Expensive

Amazon.com Inc. will have plenty of options to choose from as it narrows its search for a second headquarters outside of Seattle, and its potential costs of doing business will no doubt factor into the equation. And there too, its options are many. According to a recent analysis by real estate giant CBRE, Amazon can expect to pay as little as $67,000 per worker to get a major tech operation off the ground in Oklahoma City, and it can expect to pay roughly double that amount should it choose the San Francisco Bay area. Dozens of U.S. cities vying to land the online retail and logistics giant fall in between. CBRE's estimates were published in its recent report, "Scoring Tech Talent," comparing the costs to build out, lease and populate a major technology office in dozens of North American cities. The firm's estimates were based on an operation of 500 employees housed in 75,000 square feet of space — a layout that falls far short of the campus Amazon is seeking for its yet-to-be-determined sister headquarters. Amazon (Nasdaq: AMZN) said it expects to employ about 50,000 workers at a future second headquarters and is looking to occupy 500,000 square feet by 2019 and up to 8 million square feet by 2027. Amazon is setting aside $5 billion to build and operate the new corporate office and expects to employ 50,000 workers with an average salary of $100,000. Metro Denver-Aurora and a host of other cities are expected to bid on Amazon's proposed second headquarters complex. An analysis CBRE's data show that Denver is among the pricier large cities for operating offices, largely based on the one-year wage and rent obligations of running a modern tech operation. It figures that the annual cost for a 500-worker tech company office in metro Denver is $45.8 million — up 6.3 percent from the cost a year earlier. By extension, a 50,000-employee facility would cost $4.58 billion. Still, Denver presumably would be cheaper for Amazon to build its HQ2 complex than the San Francisco, New York, Washington and Boston areas. The study determined North America's cheapest markets are in Canada, which has a single-payer health care system that removes the competitive need to provide employer-subsidized coverage. Amazon released an open request for proposals to whet the appetite of city leaders across the U.S. and Canada, with a deadline to respond by Oct. 19. Major criteria include being an urban or suburban location in a metro area of at least 1 million residents and having an educational pipeline of talent from strong universities that are able to graduate technology industry workers. Amazon, which is expected to make a decision in 2018, has its reasons for making the process so public. "We want to find a city that is excited to work with us," according to Amazon's website. "And where our customers, employees, and the community can all benefit." (Denver Business Journal)

 

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CURRENT

1 MONTH PRIOR

1 YEAR PRIOR

FED TARGET RATE

1.25

1.25

.50

3 MONTH LIBOR

1.32

1.31

.84

PRIME RATE

4.25

4.25

3.50

10 YEAR TREASURY

2.06

2.23

1.60

30 YEAR TREASURY

2.67

2.81

2.30