Dickson Commercial Group - 2015 Commercial Market Report

Commercial Market Report WELCOME TO OUR 2015 MARKET REPORT 2015 was a year with heavy investment demand that spilled over from apartments and industrial to office, retail, and more commercial land. We saw more land sites trade hands this year and more development is on the horizon. Our workforce is continuing to diversify through the economic efforts of companies like EDAWN helping land new jobs in the area, and we should continue to see the paradigm shift in our perception as a region and as a place for many different industries to call home. We expect a new wave of population growth and job growth in the coming years.

• • • •

2015 YEAR-END

TOTAL 2015 SALES per segment

INDUSTRIAL

71

OFFICE

84

MULTI-FAMILY RETAIL

61 79

Slight decrease in overall number of sales units.

Increase in Industrial and Office sectors number of sales.

Slight Decrease in Apartments in Retail number of sales.

Commercial land demand and prices rising.

• Investment demand strong and Cap rates shrinking.

• Employment levels at all time recent lows.

COMPANIES MOVING TO THE AREA:

DON WELSH

775.850.4011 | dwelsh@dicksoncg.com DicksonCG.com

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INDUSTRIAL Our industrial market has been one of the consistently better performing asset classes throughout the years, and 2015 was no exception. Because of high demand, lower vacancy rates, and an influx of new companies to the market, we are seeing strong rental growth, which has led to the development of new industrial parks and current construction of approximately 1.5 million square feet scheduled to be completed in the first part of 2016.

SALES

OWNER/USER ACQUISITIONS

On the sales side, the year was relatively normal for acquisitions in the market. One of the more notable sales was in May of 2015 when Dermody Properties sold the newly completed 624,000 square foot Amazon fulfilment center in Lemmon Valley for $45,250,000 or $73 p/sf. The locally based developer was able to land Amazon as a tenant after they vacated the Fernley market, and shortly after completing the building sold the asset as an investment sale. Another big market change was the partial disposition of the Indcor Portfolio. At the end of February, the largest industrial owner in N. Nevada, Indcor, sold a majority share of their portfolio to Singapore’s Sovereign wealth fund Global Logistics Properties (GLP) and retaining the Indcor management team that was in place. Another larger acquisition was the 184,878 square foot building at 550 Spice Islands that sold to HC Companies out of Dallas, Texas for $5,500,000 or $30 p/sf.

There were also a couple of notable acquisitions of larger, owner user facilities this past year. One of those sales was the owner/user purchase by Cascade Designs in the Stead Submarket. The manufacturer of outdoor adventure gear bought an 86,800 sf. building located at 11500 Production Drive for $5,678,000, or $65 p/sf. The facility was situated on 9.49 acres and featured an additional 13.28 acres of excess land for future expansion. Another larger sale was the 158,040 square foot warehouse at 240 Stanford Way that was purchased by the tenant at the building for $4,100,000 ($26 p/ sf).

While 2014 had a trend of numerous sales in the $5m-10m range, 2015 had a lot more mid-sized sales to small or midsized companies, buying buildings in the $1m - $3m range in 2015. This is a good sign in that it shows both growth of smaller, existing companies or smaller, new companies enter the market. Many of these buildings were older age buildings in the Sparks Submarket. Although many of the buildings are older age and in the flood plain, the prices are starting to rise into the $65-75 per square foot range for these facilities due to demand and low borrowing costs.

NOTABLE SALES

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•

The 624,000 Amazon building in Lemmon Valley. Sold for $45,250,000 ($73 p/sq. ft.)

•

The 86,800 sq. ft. building at 11500 Production Drive. Sold for $5,678,000 ($65 p/sq. ft.)

•

The 158,040 sq. ft. building at 240 Standford Way. Sold for $4,100,000 ($26 p/sq. ft.)

•

The 184,878 sq. ft. building at 550 Spice Islands Way. Sold for $5,500,000 ($30 p/sq. ft.)

LEASING

•

We saw a relatively balanced market this last year with a combination of strong absorption and new product brought to market. Some of the more notable lease deals were:

14525 Industry Circle, Better World Books leased 128,000 square feet

•

10855 Lear Blvd, Tagg Logistics leased 153,000 square feet

TRIC/Fernley •

625 Waltham Way, Bi Nutraceuticals signed a lease for 140,000 square feet at 625 Waltham Way

Airport Submarket •

1381 Capital Court, US Cabinets leased 126,268 square feet.

Sparks submarket •

665 Spice Island Drive, Retailer Patagonia leased 79,200 square feet

•

1750 Purina Way, Allstate Warehousing leased 84,000 square feet

•

1135 Southern Way, 3PL company Fidelitone leased an additional 95,200 square feet

North Reno •

8370 Military Road, Marmot Mountain signed a lease for 271,832 square feet in Dermody Properties new Logisticenter.

We ended the year at roughly a 9.7% vacancy rate which reflects Reno, Sparks, Fernley and TRIC. And also takes into account new construction and the leasing absorption up to year end.

CONSTRUCTION Looking forward, we will see a continuation of market expansion with approximately 1,500,000 square feet currently under construction with delivery dates in the first half of 2016. Developer Avenue 55 has a 410,000 square foot project in the Spanish Springs Business Park with completion date expected in the Q1, 2016. Panattoni is building a 707,000 square foot project at their North Valley’s Commerce Center with roof completion Q1, 2016, and Dermody Properties has 704,000 square feet under construction at their Logisticenter 395 in Lemmon Valley, completion slated for Q2, 2016. In addition to speculative development taking place, there are multiple owner user (non-speculative) buildings in various stages of construction. In TRIC alone, Tesla, Switch, AZZ Galvanizing, and Aqua Metals are underway on major facilities. Also in Fernley, windows manufacturer Deceuninck recently announced plans for its new 150,000-square-foot manufacturing facility.

DON WELSH

DIRECT 775.850.4011 CELL 775.771.3322

dwelsh@dicksoncg.com

PAGE 3

LAND Our land market has come a long way from a few years ago. Residential land has recovered quicker as the market for new homes has strengthened compared to new commercial product for a couple of years. This is mainly a function of market home prices for residential and market rent prices for commercial.

COMMERCIAL Commercial land in our market is showing signs of life; and although we haven’t seen noticeable rental rate gains, we are seeing more speculative development begin to take form in certain asset classes.

Industrial land has been one of the shining stars over the last couple years and has proven strong enough for speculative development. Two of our major industrial developers completed acquisitions at year end. Dermody Properties purchased 48.80 acres just to the north of Cabelas from Reno Land Development for $5,713,003 or $2.68 p/sq. ft. and Pannatoni bought 20 acres from IGT on Trademark for $3,972,933 or $4.50 p/sq. ft. Pannatoni also purchased a much larger holding in Las Vegas from IGT. In January of 2015

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McKenzie Properties purchased 8.7 acres in South Meadows from Pfizer, which sold for $1,650,000 or $4.35 p/sq. ft.

Other asset classes have finally began to show signs of development life. Some notable sales in office and retail were the former Arterra site (.82 acres) on Liberty and Sierra Street, which sold for $1,081,510 or $30 p/sq. ft. McKenzie Properties purchase of a 5.218 acre lot in the Mountain View Corporate Center for $2,000,000 or $8.79 p/sq. ft.. In South Reno, we saw local developer Chad Clementson pick up 1.2 acres of PUD zoned land on Professional Circle for $13 p/sq. ft.. Three acres of bank owned neighborhood commercial on Thomas Creek Road also sold for $1,000,000 or $7.74 p/sq. ft..

Some smaller commercial sales included a 3.2 acre parcel on

Longley Lane for $1,483,131 or $10.64 p/sq. ft. and a small pad site off of Los Altos Parkway that sold for $623,798 or $9.07 per foot, and Surf Thru car wash company bought a 1.4 acre parcel located in the Foothill Commerce Center on South Meadows Parkway and S.Virginia Street. The carwash company paid $804,115 ($13 p/sq. ft.).

RESIDENTIAL/MULTIFAMILY Two of the more notable sales in residential this year were both done by Reno Land Development. The company bought Pinnacle Gaming’s remaining land holdings in Verdi for $13,500,000. The sale was roughly 780 acres of land on both sides of I-80. Reno Land Development also acquired the 141acre master-planned community project for 691 planned units and two commercial parcels – one consisting of 117 residential acres; and the other consisting of 11.8 acres for office/medical and 12.3 acres for commercial use. Both national and local builders were busy this year. In September, Lennar purchased 189.56 acres for $15.5 million ($81,768/acre) in South Reno, and Toll Brothers purchased 126.72 acres, which included 136 individually-parceled lots for $28,899,654. DR Horton purchased 30 finished lots for $1.5 million ($50,000/lot). Corona Cyan, which is a land banking company tied to DR Horton, was the seller of the 30 lots to DR Horton and the seller to Toll Brothers on its 126.72 acre purchase. Lennar also purchased 79 roughly quarter acre residential lots and an 88 acre parcel

in North Reno for $11,250,000. In June, Local builder Jenuane Communities bought 12 lots in Northwest Reno averaging 0.15 acres and an 18 acre parcel from DR Horton for $2.3 million.

Jenuane also bought 18 final mapped lots near the Sparks Galleria for $1,546,668 or $85,926 per lot.

The apartment market has been performing very well in Reno over the past two years. Vacancy is at an all-time of roughly 2.75% and rents are on the rise. This combined with the increases prices and low cap rates, has apartment development back on the rise. RLD also purchased another 26 acre parcel located near the Sierra Summit mall in South Reno.

They paid $9,000,000 or $7.83 p/sq. ft. for that parcel which is planned for a mix of traditional apartments and low income housing. Another notable sale of apartment ground was the 11-acre parcel in Sparks purchased by Kreg Rowe and local apartment developer Grady Kromer. The parcel is adjacent to the Costco in the Sparks Galleria and sold for $2,750,000 or 5.70 p/sq. ft. In student housing, there was a 9 acre parcel adjacent to UNR sell to a student housing developer for $5.5 million or $14 p/sq. ft. There is an existing industrial building on the site that will be torn down to make way for apartments. Also in September, there was a sizeable apartment land sale of 41.157 acres at the back of Montbello Apartments in Reno for $2.1 million ($1.17 p/sq. ft.). To end the year for apartment ground, DR Horton purchased 30 parcels totaling 5.4 acres that is zoned for apartments. The builder payed $1,680,000 or $7.14 p/sq. ft.

DON WELSH

DIRECT 775.850.4011 CELL 775.771.3322

dwelsh@dicksoncg.com

PAGE 5

MULTI-FAMILY Nationwide, the apartment market has been on a roaring pace over the past year. We have seen cap rates in major markets fall within the 3-4% range, but here in Reno we see cap rates hit the 5-6% range on the better positioned buildings. A few recent trends credit the demand for apartments.

Reno, like many other markets, is experiencing a housing shortage that is fueling increasing rental rates. On a national level, the apartment market is booming, creating marketplaces crowded with buyers and apartment owners satisfied with increasing returns.

During the recession, apartments served as a refuge for a large population dealing with mass foreclosures, turning many of those former homeowners into renters who continue to occupy an apartment, condo, or house rental. Additionally, many studies have shown that millennials are not as eager as past generations to purchase their first home These are a just a few of the economic and socioeconomic factors that have pushed the apartment market into a historic growth period since the recession.

The growth of the national apartment market is staggering, and is outperforming all other commercial real estate asset classes. The most recent reports for the third quarter of 2015 show that apartment rental rates have increased 5.9 % yearto-date, which is the strongest increase in this market cycle

PAGE 6

according to MPF Research, a leader in apartment trends research.. This cycle is also showing increased stability, as it has shown positive growth for 21 straight quarters with an average of 3.7 % annual appreciation. To put that into perspective, the last cycle from 2004 to 2008 only lasted 19 quarters with an annual appreciation of 2.8 %.

For investors looking to capitalize on Reno’s improving rental rates and low vacancy, large apartment complexes have proven to be the most desired investment. Complexes of 80 or more units are trading at steep prices in larger markets causing those institutional companies to turn to smaller markets like Reno. In 2015, the Reno market has seen approximately eight of these properties sold according to Costar, a national commercial real estate database. Many of these large complexes are sold off-market before being publicly listed as they attract unsolicited offers or the listing brokerage can provide enough buyers that a listing is not necessary. There is, for smaller complexes, similar activity with some properties producing multiple offers shortly after going on the market. Vacancy has remained between 3 to 4 %

for all apartment housing across the Reno/Sparks metro area.

With this sort of demand, apartment owners across the area are in a very positive position in this seller’s market.

$23,450,000 or $67,000 per unit.

• The 300 Unit Pioneer Meadows complex. Sold for $44 million or $146,666 p/unit

Apartment investors looking to buy have not only been challenged by available inventory, but instead, the rate of return. Commercial lenders tend to favor apartments largely due to the low vacancy coupled with appreciating rental rates.

Historically low interest rates have kept capitalization rates low. In larger markets like San Francisco or Chicago apartment buildings are trading at cap rates as low as 3 % not leaving a lot of room for sizable returns. Investors not interested in reaching for assets with low returns have been seeking out smaller markets like ours in which to place capital adding even more interested buyers to a market like Reno which as seen apartments trading at cap rates between 5 and 7 %.

• 146 Unit Sierra Highlands Complex. Sold for $9.2 million or $64,788 p/unit.

NOTABLE APARTMENT DEALS

The demand for apartments remains strong with vacancy in the 2.5 to 3 % range. In December 2015 we saw a slight dip in asking rents for Studios and 1 bedroom units and a slight increase in 2 bedroom and 3 bedroom units. The following illustrates a weighted average rent on a dollar p/sq. ft. basis encompassing over 25,000 units in the Reno/Sparks metro with a 5 unit minimum.

• Spring Villa Complex in Sparks. Sold for $16 million • Element Complex near Meadowwood Mall. Sold for $15 million or $73,529 p/unit.

• Spanish Hills Apartments on Vista Boulevard. Sold for $11.3 million or $74,342 p/unit

• The 256 unit Canyon Vista Apartments on Los Altos. Sold for $31,750,000 or $124,023 per unit.

• Vizcaya and Iron Blossom complexes as a package for Bank of America. The total sales price for both complexes was $68.1 million. Vizcaya has 318 units and showed a recorded sales price of $33,350,000 ($108,018/unit). Iron Blossom has 408 and had a recorded sales price of $33.75 million ($82,720/unit).

RENTAL REPORT

• Caviata at Kiley Ranch. Sold for $33,840,000.

• Sundance West complex on Moana and Lakeridge. Sold for Type of Unit

December Rent

Studio

$1.40

1 Bedroom 2 Bedrooms 3 Bedrooms

$1.05 $0.98 $0.82

DON WELSH

DIRECT 775.850.4011 CELL 775.771.3322

dwelsh@dicksoncg.com

PAGE 7

OFFICE Office sales in 2015 continued to show improvement with strong numbers in owner/user sales and investment transactions. The number of office sales increased from 73 in 2014 to 84 in 2015. Nationwide, our office market posted $145 billion in sales in 2015, which is up 13% from 2014 and 3 times higher than 2010.

OFFICE INVESTMENT RECAP

NOTABLE 2015 INVESTMENT SALES

With low interest rates and a lot of capital in the market pursuing deals, there have been some notable investment sales including two Class-A buildings in Mountainview Corporate Center. Local developer McKenzie Properties started off the year by purchasing the 59,590 sq. ft. building at 5470 Kietzke for $9,500,000 ($160 p/sq. ft.). Also included in this sale was the adjacent 5.128 acre site that traded for $2,000,000 or $8.79 p/sq. ft. of land. The other sale in Mountainview was in December when the off-market deal of 5441 Kietzke Lane sold for $16,295,274 or $250 p/sq. ft. to an investor out of Fremont, California. The same group also bought the retail center Southcreek in an off-market transaction. The cap rate for the Kietzke office building was roughly 6.3%, and tenants included Eide Bailly, Holland and Hart, and Ticor Title. Another large sale in December was the 36,171 sq. ft., multi-tenant building at 980 Sandhill which sold for $6,400,000 ($176.94) or roughly a 7% cap rate. Tenant’s included Alston Construction and the FBI.

•

he 45,152 sq. ft. Mitel building at 885 Trademark Sold for T $12,400,000 ($163 p/sq. ft.)

•

he 45,152 sq. ft. building at 10509 Professional Circle.

T Sold for $7.2 million ($160 p/sq. ft.). Brokered by DCG

•

he 59,590 sq. ft. building at 5470 Kietzke. Sold for $9.5 T million ($160 p/sq. ft.).

•

he 65,074 sq. ft. building at 5441 Kietzke Lane. Sold for T $16,295,274 ($250 p/sq. ft. or 6.3% cap rate)

•

The 20,292 sq. ft. building 6225 Neil Road. Sold for $3 million ($148 p/sq. ft. or 7.2% cap rate)

•

The 31,171 sq. ft. building at 980 Sandhill. Sold for $6.4 million ($177 p/sq. ft. or 7% cap rate). Brokered by DCG

•

The 53,437 sq. ft. building at 887 Trademark. Sold for $6,679,625 ($125 p/sq. ft.)

PAGE 8

LEASING RECAP On the leasing side, the spread in comparative rates between freeway-situated office buildings and off freeway office buildings is at a peak for the South Meadows submarket, while Downtown absorption continues to strengthen. While CoStar quotes a 13.3% vacancy in 342 buildings, our records show that the vacancy in the top 40 Downtown buildings is only 10.62%. Only two spaces over 10,000 square feet remain in Class-A buildings Downtown.

The market’s 200 buildings over 10,000 square feet stand at a 14.1 % vacancy. Assuming approximately 40,000 square feet of net new occupants to this subset in the 4th quarter, the year-end result should be near 14% overall vacancy, finishing stronger than the start of 2015. CoStar’s Washoe County Office Vacancy stands at 12.3% and we predict a 2016 year over year decrease to 11.9% representing 100,000 square feet of net absorption. These rates are tracking pretty closely with the national office vacancy which ended the year at around 10%.

OWNER/USER SALES Acquisition of owner-user buildings saw continued strength in 2015. There were many office buildings in the Meadowood

and South Meadows submarket selling to owner-users taking advantage of SBA lending. Price per foot ranges have increased over last year into the $160-$200 p/sq. ft. for many of these buildings. There were two large acquisitions by owner users this year. NV Energy purchased its building at 6100 Neil Road. The 293,207 sq. ft. building was purchased by the PUC for $18,000,000 or $61 p/sq. ft.. Another large owner user acquisition was Renown’s purchase of the 63,296 sq. ft., office building at 10315 Professional Circle, near their South Meadows Campus. The availability of quality owner-user buildings is beginning to shrink, and we predict pricing to continue to increase into 2016.

NOTABLE OWNER/USER SALES •

The 6,048 sq. ft. building at 661 Sierra Rose. Sold for $1.3 million ($215 p/sq. ft.). DCG brokered this sale for the seller.

•

The 293,207 sq. ft. building at 6100 Neil Road. Sold for $18 million ($61 p/sq. ft.)

•

The 63,296 sq. ft. building at 10315 Professional Circle.

Sold for $11,750,000 ($185 p/sq. ft.). DCG brokered this sale.

DON WELSH

DIRECT 775.850.4011 CELL 775.771.3322

dwelsh@dicksoncg.com

PAGE 9

RETAIL The retail market this year saw significant investment activity with many properties, from small inline to large anchored centers selling to investors trying to enter the market before cap rates get too low. Deals that had quality tenants and less vacancy were trading in the $250-300 p/sq. ft. range and in the 6-7 % cap rate range. We also saw a large number of single tenant net lease deals sell to investors this year.

NOTABLE RETAIL CENTER SALES •

Southwest Pavilion (Pink Scolari’s)- 75,000 sq. ft. Center in South Reno that sold for $8.5 million or $113 p/sq. ft.

•

Las Brisas retail center on Las Brisas and McCarran. The 13,870 sq. ft. center sold for $4,175,000 or $301 p/sq. ft.

Tenant’s included the Squeeze In, Beach Hut Deli, and Goodwill.

•

Smithridge Center on McCarran near Meadowwood Mall.

The 137,691 sq. ft. center sold for $22.3 million ($162 p/sq. ft.)

•

19,469 sq. ft., Vista Knolls inline retail center behind the Lemmon Valley Walmart sold for $7.2 million ($370/sq. ft.)

•

The Southcreek development on Foothill Road. The 66,834 center was sold to an investor out of Northern California for $25,500,000 or $381 p/sq. ft.

•

Crossroads Shopping Center on Kietzke, across from the Convention Center for $8,500,000 or $148 p/sq. ft.

•

The 10,226 sq. ft. center on Virginia and California. Sold for $3.1 million or $310 p/sq. ft.. Tenant’s included Money Tree and Great Full Gardens restaurant.

STNL •

Olive Garden at the Legends in Sparks sold for $2,771,653 or $375 p/sq. ft.

•

Wienerschnitzel fast food restaurant at 390 N. McCarran sold for $1,135,875 or $461 p/sq. ft.

•

The 6,347 sq. ft. Red Robin at the Sparks Galleria sold for $2,332,000 or $367 p/sq. ft..

•

The 10,394 sq. ft. Walgreens on S. Virginia and Neil sold for $1,625,000 or $157 p/sq. ft.

PAGE 10

•

Red Lobster on Kietzke and McCarran sold for $3,945,000 ($540 p/sq. ft.) to a group out of the Bay Area.

•

Dollar General Store in Stead that sold for $1,960,000 or $235 p/sq. ft.

LEASING The Reno/Sparks Retail market has significantly improved this year. Lease rate have improved from last year and we are seeing interest in the area from national tenants again, along with expansion from local tenants. UFC Gym, Dunkin’ Donuts, Nutrishops, Grateful Gardens, Full Pedal Indoor Cycling, Jimmy John’s and others are all looking to open new stores in the market. Larger new leases have been signed such as Smart and Final, Petco, Sleep Number Mattress, Chick-Fil-A. National tenants returning to the Reno/Sparks area is a good sign.

Vacancy for the market is tracking around 12-13% .

CONSTRUCTION New development will begin to take place. In the case of Legends at Sparks Marina, we will continue to see the exterior pads developed. However, most of the new development will be smaller pads and buildings under 20,000 square feet.

With many of the pads being built out for retailers 10,000 square feet and under. Big Box stores will continue to struggle with vacancy, and we still don’t foresee many larger tenants coming into the market with the exception of maybe a new grocer in Sparks.

Sales Statistics for 2015 2015 VS. 2014 SALES

+9%

+15%

2015: 71

2015: 84

INDUSTRIAL 2014: 65 2013: 61

-46%

-4%

2015: 61

2015: 79

OFFICE

MULTI-FAMILY

2014: 73 2013: 77

2014: 114 2013: 97

RETAIL 2014: 82 2013: 75

QUARTERLY SALES COMPARISON 30

20

OFFICE

INDUSTRIAL

25

15 10 5

Q1

Q2

Q3

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

25

RETAIL

MULTI-FAMILY

20

15

Q4

20

15

10

25

Q1

Q2

Q3

Q4

20

15

DON WELSH

DIRECT 775.850.4011 CELL 775.771.3322

dwelsh@dicksoncg.com

PAGE 11

Institutional Experience.

Local Knowledge.

The commercial team at Dickson Commercial Group has been working the Northern Nevada market for nearly 35 years. Our seasoned group of real estate professionals offers broad based market knowledge, proven problem solving capabilities and resourcefulness with a complete focus on commercial real estate.

DON WELSH

We work as a team in the truest sense of the word. We collaborate to find the best solutions and we exploit the targeted knowledge of each agent. Our multi-faceted brokerage provides local, national and international clients the full array of commercial real estate services. Agents are trained specialists with accreditation through the Society of Industrial and Office Realtors (SIOR) and Certified Commercial Investment Members (CCIM).

ccim

775.850.4011 OFFICE 775.771.3322 CELL dwelsh@dicksoncg.com

As a member of the Dickson Commercial Group, Don specializes exclusively in owner and tenant representation for full range of office properties in every Reno-Sparks market. Don has been in the sales industry for over 35 years. He started in his commercial real estate career in 2000 working with Colliers International in their office division. Don specializes in all transactions from lease negotiation, to tenant improvement design and build out. Don also has extensive experience in buying and selling office properties in the Reno/Sparks market. Don is a Certified Commercial Investment Member (CCIM), and a recognized leader in the disciplines of commercial and investment real estate. He served as the Northern Nevada CCIM Chapter President in 2004.

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DON WELSH 775.850.4011 | dwelsh@dicksoncg.com

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