**This Blog previously appeared in The New England Real Estate Journal in June 2006** - Kristin

What’s next for New Haven County’s Industrial Properties?

The New Haven Industrial market remains, for the most part, the domain of the smaller user company. Though 80,000sf of the former Bic Headquarters and manufacturing facility were recently leased to a Furniture design and manufacturing company, leases of that size are not the rule. The dearth of Manufacturing is a concern throughout the state: from the Capitol, to the Greater New Haven Chamber of Commerce, the Manufacturers Association of New Haven and even to Craigslist, where a recent post talked about the loss of CT jobs due to the loss of our manufacturing base.

New Haven was a force in Manufacturing at the turn of the last century and throughout the 40’s and 50’s, but it has steadily declined in recent years. The shutdown of U.S. Repeating Arms, known around the world as Winchester and Simkins Industries are two more casualties of manufacturing loss this year.

Since many of the buildings were constructed in the pre-World War II era, and upgrades have been industry specific, the question is what happens to them, when manufacturers close their doors. Very rarely do the few new manufacturers who are moving into the area look to the older buildings as a potential home. New manufacturers, who may move in, work with advanced technology. They look for clean bright energy efficient sites with modern amenities for their highly skilled work force.

Brick mill style buildings and older steel or masonry structures are too difficult to bring up to 21st century standards. Years of waste and hazardous material disposal, conducted long before the days of environmental law often call the ground itself into question. Reuse of these older buildings is the question. Some such as the Strouse-Adler building are renovated into residential use. Others, such as the former Saint-Gobain site, or even the former Starter Headquarters remain vacant or only modestly leased. Many Landlords have begun offering incentives, particularly on the Shoreline and Middlesex Counties to prospective Tenants, in the form of reduced rents, fit up construction, and rental abatements. As the market softens, which is expected throughout the industry sometime between next week and a two years from now, look for more incentives from Landlords, and Economic Developers.

The best reuse for these buildings today is not as Industrial Sites. Manufacturers don’t need them and they generally don’t have the ceiling heights or clear spans to accommodate distributors or even assemblers. Their future lies in the hands of redevelopment projects. Life style centers that include retail uses, restaurants and residential components, but those uses are not without hurdles, from environmental issues to lifestyle issues, such as proximity to Yale and the Town Green, or highway access.

The Industrial market has slowed throughout the region, with many industrial spaces from 5,000 to 50,000sf on the market for lease. It is becoming more difficult for heavy and light industrial landlords to fill space. One New Haven County Landlord who specializes in Light Industrial buildings reports 10% vacancy for the first time in eight years. Whether it’s caused by rising fuel prices, economic fears, or simply the cycle is open to debate. But, the speed with which vacant spaces fill has slowed considerably since the start of 2006. In spite of that, the real estate market remains robust, Investment Sales, Office Sales and Retail Sales and Leasing leave few options on the market for bargain hunters.


June 30, 2006

Investors are always talking Cap Rates. You hear it at cocktail parties: drug stores are selling at a 7 cap, or more likely today, a 6 cap. 10 caps are a thing of the past. It sounds like code, shrouded in mystery, for those “In the Know” only.

The definition of a Cap Rate is, quite simply, the Capitalization Rate of the income generated by real estate. Originally defined by the Appraisal Industry, for all its mystery it’s a measurement. A measurement by which institutions or large investors buy real estate. It’s a predictor, but not a guarantee. If you have a hundred buildings leased to 100 “Credit Rated Tenants” then you can rely on the fact that your buildings for the most part will return at the cap rate you’ve determined. However, if you own one building and Worldcomm or more recently GM is your tenant, your Cap rate may change drastically, overnight.

Cap Rates are basically, the Net Operating Income of a building (N.O.I.), divided by the value or market price of the building. Cap Rates are calculated on buildings, traditionally, where the tenancy runs a minimum of ten years, and often twenty years.

In Our Local Market of New Haven and the shoreline, people often discuss cap rates on properties where the leases only extend five years. This doesn’t give a Buyer a true picture of stability. That’s one of the reasons that drug stores are valued by some investors. Pure net leases where the Tenant pays all the bills and is signed up for twenty years is a pretty stable investment, particularly in shoreline towns like Clinton, Westbrook, or even, for that matter, larger industrial, warehouse, distribution and commercial hubs like Wallingford, North Haven, Milford.

In a multi-tenant light industrial property, calculating a cap rate is just the same as it is for a retail strip or power center. N.O.I. divided by market price, and N.O.I. takes into account, vacancy losses, maintenance and all other expenses. The difference between being an investor in New Haven, which is commonly referred to as a second or third tier market, and a city like Chicago or Memphis, is that we don’t fill our buildings with credit rated tenants. We are populated by family owned companies, privately held, that have been in business for generations. That may not turn on the institutional investor, but that’s where local investors have the edge over a REIT or large investor from New York City. Cap rates and credit ratings are great, but there’s still a lot to be said for knowing your tenant company and counting the cash return on your initial investment. - Kristin


June 20, 2006

The Real Estate Market appears to be slowing .Economic indicators point to the trend continuing. Soon, a For Sale By Owner sign on a 7,000sf building in Branford isn’t going to make the phone ring. Knowledge of companies looking to expand or contract, and contacts in the industry will once again be valued by all Sellers, not just the ones who leave the job to the people who do it everyday.

Similarly, as more properties come to market, Full Service Brokerage Firms will become more and more valuable to the Commercial Real Estate Purchasers who have businesses to run they will remember that Professionals, who offer a complete package of services and work on the Business Owner’s or Investor’s behalf, are worth their weight in gold.

Commercial Real Estate Practitioners are Professionals. The good ones pride themselves on advanced education, ethics, and their consultation services. They become as important to an investor or business owner’s financial/professional team as a good lawyer, an excellent accountant and a great financial tax/estate planner. It is less acceptable than ever, to work with an agent who simply sticks a sign in the ground, or turns on the lights and hands a tenant or buyer a fact sheet. If your agent is still doing that, fire him or her and interview a new agent. There are too many good people in the field for you to be stuck with a dud.

There are several things to seek in a Commercial Real Estate Broker, or in a Residential Agent, for that matter. Don’t just hire your Brother-in-Law or your daughter’s ex-math teacher. Find out what services the company provides and how qualified your agent is.

Tenant/Buyer Representation: In Connecticut, Commercial Real Estate and Residential Real Estate (home) Buyers are more often than not, represented by a Buyers’ Agent. This agent owes its allegiance to the Buyer or Tenant, not to the Seller or Landlord. Just like a Good Listing Agent, a Good Buyer’s agent will provide Buyer or Tenant with an outline of the process, a new homebuyer’s package or a listing of contractors whom a Tenant can contact to Fit-Up Office or Manufacturing Spaces.

Education: States demand Continuing Education as part of the remaining an active licensee. However, any commercial agent should go above and beyond, learning everyday, whether through the Global S.I.O.R. (Society Office Industrial Realtors) Network Education Foundation, CCIM, IORETA, NAIOP, ICSC. Similarly, residential specialists can achieve designations like ABR, GRE and more.

There is no reason to work with someone who won’t be an asset to your team. Commercial Professionals in Connecticut must be familiar with Environmental Law to be of value to their clients, Budgeting, Operating Expenses, Market Norms for Maintenance costs and the like. Whether Buying a million square feet in downtown Stamford, an historic office in New Haven’s Ninth Square or leasing two rooms of office in Guilford or Branford. Commercial Property acquisition from Wallingford Industrial Space, to Distribution in Rocky Hill or Investment in Old Saybrook, or anywhere in between, requires knowledge and diligence on the part of your agent. If they are afraid of your questions, find someone else. - Kristin


June 2, 2006

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