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CCIM Institute Market Forecast – Through the Looking Glass January 23, 2013

Posted by Erik Swanson in Articles, Investment Tools, Research/Data.
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Click HERE or on the image above to be directed to the full article.

Office. The office sector’s vacancy declined to 17.1 percent in 3Q12 from 17.4 percent a year earlier, according to Reis. Absorption was positive throughout the year, although asking and effective rents increased only slightly (approximately 35 cents to 50 cents per square foot on average). The total volume of office properties declined to $60.2 million on a 12-month trailing basis in 3Q12, which was lower than a year ago and compared to the previous quarter’s volume, according to RERC’s transaction analysis. The size-weighted average price dropped to $177 psf on a 12-month trailing basis.

Industrial. The industrial sector’s availability rate fell to 13.1 percent during 3Q12, which is the ninth consecutive quarter in which the industrial availability rate has declined, according to CBRE. Total sales volume of industrial properties increased slightly to more than $30.7 million in 3Q12, higher than a year ago and the previous quarter’s sales on a 12-month trailing basis, per RERC’s transaction analysis. In addition, the size-weighted average price of industrial space increased to $55 psf on a 12-month trailing basis.

Retail. The retail sector’s vacancy remained at 10.8 percent in 3Q12, down only 20 basis points from 3Q11. Asking and effective rents for neighborhood and community centers were flat, increasing an average of only 8 cents psf over the year, according to Reis. However, this is the first year since the recession began that absorption was positive during each quarter. RERC’s transaction analysis shows that 12-month trailing total retail sales volume decreased to $40.5 million in 3Q12, which was down from YOY volume and from prior-quarter volume. The size-weighted average price of retail space decreased to $136 psf in 3Q12.

As for the future, the relative safety of commercial real estate as an asset class is likely to continue to be critical for investors in the year ahead. Real estate is tangible and transparent, and it offers reasonable returns as an investment alternative, particularly in periods of volatility, which we expect as long as the challenges in the national economy continue.

Apartments. Although fundamentals continue to improve for the multifamily sector, volume and price declined in 3Q12. The vacancy rate for the apartment sector declined to 4.6 percent during 3Q12 compared to 5.6 percent a year ago, according to Reis. Net absorption began to slow, but asking and effective rents increased $35 to $40 per unit during the year. According to RERC’s transaction analysis, total transaction volume for the apartment sector decreased to nearly $56.8 million in 3Q12 on a 12-month trailing basis, which was higher than year-ago volume, but less than 2Q12 volume. The size-weighted average price per apartment unit increased to $90,848 on a 12-month trailing basis, which was higher than the year-ago average price but lower than the 2Q12 price.

Hotels. Third-quarter 2012 hotel sector occupancy rose to 64.2 percent, a 2.5-percent YOY increase, according to Smith Travel Research. The average daily rate was up 5.4 percent to $106.60, and revenue per available room increased 8.0 percent to $68.43. However, RERC’s transaction analysis indicates that total sales volume for the hotel sector declined to more than $12.3 million on a 12-month trailing basis in 3Q12, which was lower than both year-ago volume and prior-quarter volume. The price for hotel rooms also declined compared to both year-ago and previous-quarter pricing, with a size-weighted average price per unit of $89,832 on a 12-month trailing basis in 3Q12.

Click HERE or on the image above to be directed to the full article.


Market Review – Retail 4th Qtr 2012 January 17, 2013

Posted by Erik Swanson in Development, Research/Data, Retail News.
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The retail market improved in 2012 with positive absorption, some limited new construction, and a very strong investment climate for core assets. There has even been more interest in B and C quality retail investments.

In a nutshell the forecast is:

  • Vacancy Down
  • Construction – Up (slightly)
  • Rents – Flat (argh!)
  • Absorption – Up

Loopnet: Regional Retail Property Asking Price Index – Sale Trends January 11, 2013

Posted by Erik Swanson in Research/Data, Retail News, Retail Sales Comps, Uncategorized.
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Sept. 12 vs. 3 mo. prior Y-O-Y
State $126.25 -6.8% -15.4%
Metro $166.79 -10.4% -18.0%
County $194.97 -10.9% -16.7%
City $182.17 -13.6% -24.9%

The average asking price for retail properties in the metro area was $166.79 per square foot for the month. This is down 18% from the previous year, and down 11.8% from the end of the second quarter of 2012. Asking prices for retail properties have fallen to a new three-year low this month. The previous three-year low was $181.69, set last month

A 92 Year-Old Solution for Real Estate Investors Facing Higher Taxes in 2013: January 9, 2013

Posted by Erik Swanson in Uncategorized.
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1031 Exchanges Offer Full Deferral of the New 3.8% Medicare Surtax Tax and 20% Capital Gain Tax

By Cris Anderson, Esq.

The familiar adage, “It’s not how much you make, but how much you keep” rings truer than ever for Northwest real estate investors in 2013. Not only have capital gain taxes increased significantly for high earners, but many investors below the top tax bracket face an additional 3.8% surtax on passive investment income like capital gains. Fortunately, IRC Section 1031, a provision which has been in the tax code since 1921, provides critically needed tax relief.

Under the American Taxpayer Relief Act of 2012, the top capital gain tax rate has been permanently increased to 20% (up from 15%) for single filers with incomes above $400,000 and married couples filing jointly with incomes exceeding $450,000. In addition, the new IRC Section 1411 3.8% Medicare surtax on net investment income, which includes capital gains, results in an overall rate for higher-income taxpayers of 23.8% — a staggering 58% increase from 2012 tax rates!

 Four Steps Involved in Determining Capital Gain Taxation

Absent the tax deferral benefits of a 1031 exchange, below is a summary of the four ways investors will be taxed on the sale of an investment property:

1)    Depreciation Recapture: Taxpayers will be taxed at a rate of 25% on all depreciation recapture.

2)    Federal Capital Gain Taxes: Investors owe Federal capital gain taxes on the remaining economic gain depending upon their taxable income. Since a new higher capital gain tax rate of 20% has been added to the tax code, investors exceeding the $400,000 taxable income threshold for single filers and married couples filing jointly with over $450,000 in taxable income will be subject to the new higher tax rate. The previous Federal capital gain tax rate of 15% remains for investors below these threshold income amounts.

3)    New Medicare Surtax Pursuant to IRC Section 1411: The Health Care and Education Reconciliation Act of 2010 added a new 3.8% Medicare Surtax on “net investment income.” This 3.8% Medicare surtax applies to taxpayers with “net investment income” who exceed threshold income amounts of $200,000 for single filers and $250,000 for married couples filing jointly. Pursuant to IRC Section 1411, “net investment income” includes interest, dividends, capital gains, retirement income and income from partnerships (as well as other forms of “unearned income”).

4.) State Taxes: Taxpayers must also take into account the applicable state tax, if any, to determine their total tax owed. Washington has no state taxes, while the other Northwest states do.

Snapshot of 2013 Federal Capital Gain Tax Rates

Single Taxpayer

Married Filing Jointly

Capital Gain

Tax Rate

Section 1411

Medicare Surtax


Tax Rate

$0 – $36,250

$0 – $72,500




$36,250 – $200,000

$72,500 – $250,000




$200,000 – $400,000

$250,000 – $450,000









* The 3.8% Medicare surtax only applies to “net investment income” as defined in IRC Section 1411.


1031 Exchanges Help Investors Defer the New 3.8% Medicare Surtax

Under recently proposed regulations, REG-130507-11, taxpayers have received proposed guidance from the IRS that notes: “to the extent gain from a like-kind exchange is not recognized for income tax purposes under Section 1031, it is not recognized for purposes of determining net investment income under Section 1411.” [§1.1411-5(C)(i)(2)(ii)].  Although these regulations are not yet finalized, taxpayers may rely on the proposed regulations to be in compliance with Section 1411 until the effective date of the final regulations.

Despite these new tax increases, one aspect of the tax code provides real estate investors with a huge tax advantage. Section 1031 allows property owners holding property for investment purposes to defer taxes that would otherwise be recognized upon the sale of investment property.  Savvy investors use 1031 exchanges to redeploy their investment capital into better performing investment properties.  An exchange provides a fantastic opportunity for investment property owners to defer all capital gain taxes that would otherwise be owed.

Cris Anderson is an attorney and Northwest Division Manager of Asset Preservation, Inc., a nationwide Qualified Intermediary and wholly owned subsidiary of Stewart Title.


Jeff Lyon, Kidder Mathews featured in NAIOP video December 5, 2011

Posted by Erik Swanson in Articles, Blogs, Development, Research/Data, Uncategorized, Video.
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KM’s CEO Jeff Lyon hosted NAIOPs 2011 Night of the Stars awards gala last month. Jeff’s appears in a short promotional video with some pretty cool animation featuring Kidder Mathews. You can check out the video here.  

Here are the 2011 NAIOP WINNERS with some links below:  

Public Project of the Year: UW Foster School of Business – Paccar Hall

Public Project of the Year: Pike Place Market Renovation

Community Impact of the Year: Compass Veterans Center

Hospitality Development of the Year: The Alaska Building – Marriott Hotel

Private Education Development of the Year: Seattle University – Lemieux Library & Expansion and Renovation

Technology/Life Sciences (Non-Public) Development of the Year: Swedish Issaquah Hospital and Medical Center

Redevelopment/Renovation of the Year: Terry Avenue Building

Commercial Interior of the Year: Nuance Communications

Multi-Family Development of the Year: LINK Apartments

Mixed Use Development of the Year: The Landing – Renton

Industrial Development of the Year: Harbor Wholesale Grocery Headquarters: Warehouse and Distribution Center at Hawks Prairie 111 Corporate Park

Office Development of the Year: Bill & Melinda Gates Foundation Campus

Market Adaptation of the Year: Stadium Nissan of Seattle

Deal of the Year: Seventh & Madison Building – Polyclinic

Developer of the Year: Vulcan Real Estate

SIOR Industrial Broker of the Year: Wilma Warshak

SIOR Office Broker of the Year: Jesse Ottele

SIOR Investment Sales Broker of the Year: Jon Hallgrimson

Seattle Area Retail Vacancy and Rental Rates December 1, 2011

Posted by Erik Swanson in Research/Data, Retail News.
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Officespace.com put together an interesting chart showing the vacancy and rental rates for nearly 2400 retail buildings in the Seattle MSA.  There’s lots of space still available…almost 6.2 million square feet.  Tacoma’s vacancy is at a whopping 14% and the Northend (Shoreline, Lynnwood, Everett) is over 10%. Not surprisingly the urban downtown areas have fared much better with vacancy rate of around 7% on average.  

The chart shows an average rental rate of $22.48 per square foot per year. I have to believe those are asking rates based on listings and not executed lease rates. Although there has been some increase in leasing activity there are still relatively few tenants in the market. With so much available space to choose from, tenants still have significant leverage in negotiations with landlords.

Kidder Mathews Bolsters Retail Team September 29, 2011

Posted by Erik Swanson in Research/Data, Retail News, Uncategorized.
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Kidder Mathews has strengthened its retail group in recent weeks with the addition of veteran retail specialists Rune Harkestad, Tom Dillon, Eric and Brad Bissell, and Brian Engleking.

Eric Bissell spent the majority of his 28-year career at CB Commercial and First Western Properties, but was most recently at Cascade Commercial/Wallace Properties.  Brad was also at Cascade and Wallace and will partner with Eric. They will specialized in tenant rep, land acquisition, and investment sales.

Tom Dillion is a 40 year veteran of the industry working on both the client and broker sides of the business. Tom was most recently with First Western Properties. Over the years Tom has represented national tenants such as Car Quest, Cold Stone, Godfathers, Jack-in-the-Box and Radio Shack.

Rune Harkestad is 15 year real estate veteran. He  began working as a commercial retail specialist with JSH Properties in 1998. Later he worked with First Western Properties, where his focus was locating, analyzing and acquiring development sites in Washington State for companies like Walgreens drugstores, KeyBank, and SONIC restaurants.

Brian Engelking has over 14 years experience in retail leasing and tenant representation. Prior to brokering real estate, Brian successfully owned and operated a chain of 15 video rental stores from 1987-1995.

All told, the Kidder Mathews retail team now totals over 20 experienced agents in Washington alone. Welcome gentlemen.

KM’s Seattle Market Update September 20, 2011

Posted by Erik Swanson in Articles, Research/Data, Uncategorized.
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Kent Mueller, Manager of Strategic Research at Kidder Mathews puts together a nice piece that details market activity for the Apartment, Industrial, Office and Retail sectors here in the Puget Sound. Check it out by clicking on the graphic below.  

Puget Sound Investment Review – September 2011 September 19, 2011

Posted by Erik Swanson in Articles, Puget Sound Investment Review, Research/Data, Retail News, Sale, Uncategorized.
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Anchored Retail Draws Buyers August 9, 2011

Posted by Erik Swanson in Articles, Retail News, Retail Sales Comps, Sale, Uncategorized.
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The appetite for grocery anchored retail investments remains strong. Two area centers traded hands over the last couple of weeks. 

Gerrity Holdings purchased the QFC anchored North Lynnwood Shopping center for $10.2 million which is roughly a 7.25% cap rate. The property was originally listed for sale last year at $10,600,000  a 7% cap rate. 

Another recent sale was the 120,860 square foot Canyon Park Shopping Center. The Albertson, Rite Aid anchored center sold for $18,400,000 which equates to $152 per square foot in an all cash transaction. The purchase included the inline space and the ground leases for the Albertson’s and Shell. Retail Opportunity Investment Corporation beat out numerous buyers with a 7.06 Cap rate, all-cash offer with a quick 3 week close.  

It’s been an interesting few weeks with all that’s gone on in the world. The political fight over raising the debt ceiling and the S&P down grade have certainly been a distraction and investors seem uncertain as to the lasting effects on CRE (check out this nreionline.com article). It seems clear that for the foreseeable future well located properties with strong anchors will continue to draw serious buyer interest.