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Real Estate Notebook: Amazon expands Atlanta operations

Source: Atlanta Business Chronicle

Amazon.com Inc. is expanding its Atlanta warehouse operations by turning two aging industrial buildings on the Perimeter into its latest delivery station.

The e-commerce giant purchased a 20-acre property in Doraville just north of I-285 on the Gwinnett-DeKalb county line. It paid $23.4 million for the land at 6945 Button Gwinnett Drive and 4600 Northeast Expressway, according to Databank Inc., a firm that tracks real estate sales across Atlanta. The industrial site sold for about $1.2 million per acre, a record price for the area, according to market research. CBRE’s David Nixon and Tony Cerniglia brokered the sale.

Amazon’s contractors have started demolishing the existing buildings on the property. It could occupy more than 120,000 square feet of space for a new delivery station, according to public documents and sources familiar with the project.

Amazon has been rapidly expanding its delivery stations across Atlanta, with the potential Doraville site becoming the latest example. Four have already opened this year. The new Doraville delivery station will open in 2021. Altogether, they are creating hundreds of full-time and part-time jobs, paying a minimum of $15 per hour. Amazon now has eight delivery stations across the state, including Atlanta, Buford and Fairburn. It’s also ramped up hiring.

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‘Primed’ for Growth: How Amazon and the shift to e-commerce impacts the Atlanta economy

Source: Atlanta Business Chronicle

As Amazon.com builds its fulfillment engine across Atlanta, the e-commerce giant has ignited growth amid a mostly bleak COVID-19 economy.

First the indirect impact.

Consider the amount of industrial space Amazon alone is already responsible for absorbing this year across metro Atlanta — between 7 million and 8 million square feet, according to some market estimates. The e-commerce giant has closed to 4 million square feet in the past several months — a number likely to grow.

Amazon’s total fulfillment center network has expanded to least 13 million square feet across the Atlanta region, almost doubling its size from the end of last year. All this means thousands of construction jobs could have an opportunity to shift from residential and office high-rises — both are declining in starts — to the development of new logistics facilities.

Amazon is also either offsetting, or contributing to, depending on how you look at it, the erosion of jobs in retail, particularly the stand-alone and mall-based stores. For example, transportation and warehousing saw a 39% decline in unemployment claims since the start of November, one of the most-improved performances of any Georgia job sector.

Amazon is bolstering the strength of trade and logistics, one of Atlanta’s most important employment sectors — filled with warehouse workers, cargo agents, truck drivers. In fact, trade and logistics employs just over 200,000, the 5th largest among U.S. metros, according to the Brookings Institution.

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KKR Acquires 1M-SF Industrial Facility in Metro Atlanta

Source: Connect Atlanta

JLL has brokered the sale of a 1,002,150-square-foot warehouse at The Cubes at Bridgeport industrial park in Metro Atlanta’s Coweta County. The buyer, KKR, acquired the facility for an undisclosed price.

The 1,002,150-square-foot facility, which was developed on a speculative basis, is located at 280 Bridgeport Parkway in Newnan. The building’s shell was completed in November 2019 and features 40-foot clear heights, 620-feet deep cross loading, 50-foot by 57-foot column spacing and 60-foot speed bays. The facility, which is fully leased, is the first completed development at the 500-acre mega site.

John Huguenard, Britton Burdette, Matt Wirth and Dennis Mitchell of JLL represented the seller in the transaction, CRG, the real estate development and investment arm of Chicago-based Clayco. The warehouse development was a joint venture partnership between CRG, U.S Logistics Fund 1 and Pope & Land.

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Amazon Fires up Atlanta Fulfillment Engine, Pays Record Price for Doraville Site

Source: Atlanta Business Journal

Amazon.com Inc. is expanding its Atlanta warehouse operations by turning two aging industrial buildings on the Perimeter into its latest delivery station.

The e-commerce giant purchased a 20-acre property in Doraville just north of I-285 on the Gwinnett-DeKalb county line. It paid $23.4 million for the land at 6945 Button Gwinnett Drive and 4600 Northeast Expressway, according to Databank Inc., a firm that tracks real estate sales across Atlanta. The industrial site sold for about $1.2 million per acre, a record price for the area, according to market research. CBRE’s David Nixon and Tony Cerniglia brokered the sale.

Redevelopment starts: Amazon’s contractors have started demolishing the existing buildings on the property. It could occupy more than 120,000 square feet of space for a new delivery station, according to public documents and sources familiar with the project. Read more here.

Rapid expansion: Amazon has been rapidly expanding its delivery stations across Atlanta, with the potential Doraville site becoming the latest example. Four have already opened this year. The new Doraville delivery station will open in 2021. Altogether, they are creating hundreds of full-time and part-time jobs, paying a minimum of $15 per hour. Amazon now has eight delivery stations across the state, including Atlanta, Buford and Fairburn. It’s also ramped up hiring.

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Atlanta Industrial Market Reaches New Record in 2020

Source: Atlanta Business Chronicle

What impact has Amazon had on the Atlanta industrial market? Who is investing in industrial space? Colliers International recently released its Big-Box Market Report: 2020 Midyear Review and Outlook, which shows that largely due to demands brought on by the Covid-19 pandemic, industrial is a hot market.

Nationwide, according to the report, the need for warehouse, manufacturing and distribution space is high. “Net occupancy gains for bulk industrial space totaled nearly 79.8 million square feet at mid-year, up 51% over the 52.8 million square feet transacted at mid-year 2019. A total of 96.5 million square feet of new supply was added to the market, and an additional 170.7 million square feet of big-box space remains under construction,” the report states.

Major projects from Amazon, as well as Goodyear and Facebook, make up much of the nearly 13.4 million square feet of new bulk inventory under construction in the metro area. In the first half of 2020, 7.9 million square feet of new supply was added to the market.

Much of that is, in fact, coming from Amazon, which has leased 5.9 million square feet in 2020 and expanded its warehouse and distribution network by 80% in the Atlanta area. “With Amazon’s transactions signed during the second quarter, Atlanta’s industrial market has reached a new record number of million-square-foot lease transactions ever in one year,” according to the report.

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CORFAC International Names New CEO, Jonathan Salk

Source: Southeast Real Estate Business

DES PLAINES, ILL. — CORFAC International has named Jonathan Salk as CEO of the organization. Salk previously served as executive director.

Since joining CORFAC in 2015, he has been responsible for day-to-day operations of the organization and spearheaded growth. Thirty new offices have joined CORFAC since 2015, bringing the total count to 75 offices globally.

Salk has also been instrumental in expanding the CORFAC sponsorship program, arranging industry alliances and rolling out new education and networking initiatives. Founded in 1989, Des Plaines-based CORFAC is a global brokerage network comprising privately held commercial real estate firms.

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US GDP Grows 33.1 Percent in Third Quarter, Beating Expectations

Source: Alex Tostado in District of ColumbiaSoutheast

WASHINGTON, D.C. — The U.S. gross domestic product (GDP) grew 33.1 percent in the third quarter on an annualized basis. Economists surveyed by Dow Jones expected growth to reach 32 percent. The third-quarter growth is a stark contrast to the second quarter, when GDP plummeted 31.4 percent due to the coronavirus shutdown. The most recent figure sets the record for post-World War II growth, more than doubling the previous mark of 16 percent set in the first quarter of 1950.

The economic surge, though, does not mean the economy is back to its pre-pandemic levels. The U.S. Department of Labor reported Thursday that initial unemployment claims for the week ending Oct. 24 reached 751,000. The total is the lowest mark since the onset of the pandemic, but still historically high. Initial claims in February of this year hovered around 200,000 per week. Continuing claims, for which data lags a week, came in at nearly 7.8 million for the week ending Oct. 17, a decrease of 709,000 claims from the previous week.

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Sim Doughtie, President of King Industrial Realty, Presents at 2020 State of Atlanta Conference

2020 State of Atlanta: The New Normal? (Part 2) By Henry J. Wise MAI, CBA, CRE and James Vernor PhD, MAI

The State of Atlanta conference was created by the Atlanta Area Chapter of the Appraisal Institute 20 years ago. Its purpose was to take advantage of the wealth of local real estate industry expertise and share it, in the context of a relevant current happening, with member appraisers, their clients, and other experts in the industry. This year’s program committee was chaired by Sherry Watkins, MAI, past president of the chapter. This year’s presentations were delivered virtually because of the need to socially distance to avoid the coronavirus. And they were divided into two halves. This summarizes the second half, delivered Thursday October 15, 2020. First, we’ll introduce each speaker and then summarize their remarks which were well supported by PowerPoint slides.

Program Moderator: Jeff Miller, MAI, AI-GRS, CCIM, ASA, Sr. Managing Director, Valbridge Property Advisors.

Presenters:

Sim Doughtie, SIOR, CCIM, MCR, SLCR; President, King Industrial; speaking on the industrial market.

Thank goodness Sim Doughtie was on today’s program. He gave us our first unabashed moments of joy as he reported on the industrial marketplace. This year we have had over 65.3 million SF of activity with a net absorption of 24.8 million SF. Wow! This is up from 48.6 million SF of activity from same time last year. We have only about 10.8% of our industrial space available and only 24.5 million SF of new space under construction, of which 65% is spec. Sales to investors have pushed CAP rates below 5%. It seems to be a great time to be in the industrial space business. His company has developed some high-quality data series which are well presented in his PowerPoints.

Stacy Watson, Director, Economic and Industrial Development for Georgia Ports Authority; speaking on ports.

Stacy Watson’s introductory remarks constituted an eye opener for most of us. Few of us had recognized the $44 billion dollar impact that the Georgia Ports Authority [GPA] has on the State’s economy (about 8% of the total), or the fact that it impacted more than 439,000 jobs in the state. Most of us did not know that there were inland ports in north and west Georgia. No wonder K.C. Conway always tells us to pay attention to information about shipping when we are studying the market dynamics that affect our Highest and Best Use analysis and support our economic forecasts. We were impressed by the fact that the GPA plans to invest $3.2 billion in new capital improvements over the next 10 years, up from $1 billion over the last 10 years. Given the growth in Georgia’s economy spurred by the last 10 years activity flowing through Georgia’s ports, the planned increase in spending by the GPA should be cited as support for expected future economic growth in our state, particularly in our industrial appraisal assignments.

Anne Sheehan, MAI, SRA CRE, CEO, President, Real Property Tax Advisors; speaking on property tax appeals. 

Anne Sheehan, MAI, reminded us that property taxes usually constitute the largest single item in a property’s operating expenses, and that they do not vary with income. They are based “Ad Valorem” (on the value of the tangible real property and the personal property). Given that the millage rate in most of our metropolitan area counties ranges between 40 and 50 mills, property taxes really constitute an annual expense equal to between 1.6% and 2% of the fair market value of the tangible assets [50 mills assessed value with a 40% assessment ratio = 2% of 100% of FMV].  Anne reminded us of the importance of identifying and separating out the contributory value of any intangible assets, such as brand for a hotel or chain restaurant, or the contributory business value for a C-store, or the Certificate of Need and extensive trained workforce required for a nursing home or continuous care retirement community. 

Luke Waters, Senior Director of Investment Sales, Sullivan Wickley; speaking on retail.

Luke Waters told us that for retail, we are already at the new normal, with low transaction volumes and low inventories of willing sellers. The gap between real estate buyer expectations and seller expectations is growing, with buyers looking for big discounts and only about 6% of sellers willing to budge on price. He pointed out that not everyone in retail has been hurt by Covid. Some “essential” stores, like Dollar General, experienced a substantial multiple of before-covid growth and prosperity, and these are the stores that are the current darlings for investors, which is why the CAP rates extracted from the relatively few recent transactions are among the lowest in history. This issue of having only a few transactions, and relatively low CAP rates from those few sales means that we appraisers must be particularly careful about the degree of comparability between the sales that did occur and the subject property. Luke explained that the present uncertainty surrounding the 1031 exchanges is really roiling the retail market, and, in his opinion, will affect all real estate property markets. Although his belief that the 1031 exchange was the essential lubricant required to make real estate markets work was not universally shared by other speakers, it is something about which real estate appraisers should be aware as a factor when we consider material changes in the marketplace

Charlotte Kang, MAI, Executive Vice President, JLL hotels and hospitality; speaking on hotel industry.

Charlotte Kang, MAI, like Anne Sheehan, MAI, is another of our Atlanta chapter members of whom we should be so proud. She has a wonderful knowledge of hotels, which is her area of specialty.  Charlotte pointed out that although much of the hotel market is suffering existential losses in rate, occupancy and, consequentially, REVPAR [revenue per available room], not all properties are in the same boat. Demand for extended stay, transient, drive-to destinations, and economy properties has increased during the pandemic, proving once again the importance of market segmentation in our industry. The properties that are in the most serious difficulty are the former darlings of the market, the gateway (airport, etc.) hotels, the luxury hotels, the convention hotels and the leisure hotels, and they are experiencing the greatest drops in REVPAR and are probably at highest risk.  The charts Charlotte included in her presentation show that REVPAR dropped by just under 85% from the week ending Feb. 8, 2020 to the week ending April 11, and as of October 10 appears to still be down by about 45%. At REVPAR decreases of this magnitude and with no end in sight, we wonder how these hotels are going to be able to pay their property taxes, mortgages, insurance and other similar fixed expenses. One small ray of light in Charlotte’s presentation was her reminding us that Atlanta’s approximately 100,000 hotel rooms are considered middle-tier, and that the impact on Atlanta’s hotel market will be more like most of the country’s. We are unlikely to be as badly damaged as Las Vegas, Miami, New York and other premier hotel markets.

Ellen Stern, Senior Vice President, CBRE; speaking on the office market.

Ellen Stern is CBRE’s expert on tenants in the office market. She asked us to consider three questions as we try to understand the office market affected by Covid-19. (1) What are tenants doing? (2) What are the market impacts? (3) What is the likely future? Her answer to the first question is that tenants are kicking the can down the road. Deal volume for 2020 Y-T-D is down by 63%, from 293 deals in 2019 to 107 in 2020. Many tenants are trying for short term extensions. Most of the deals have been in the suburban market than in the CBD markets, and more of the deals have been for smaller spaces in the 2,000 SF to 8,000 SF range. However, only 10 properties have announced any decreases in quoted rates. However, according to Ellen, office is not dead. There are six factors that she believes are market drivers to which we should pay attention as we appraise office buildings: (1) Dedensification; (2) Hub and Spoke approach; (3) Remote working doesn’t work for everyone or for all circumstances; (4) The need to recruit and maintain talent; (5) Building brand and corporate culture; and (6) Mentorship. Ellen stated that the Sunbelt in general and Atlanta in particular remain attractive areas for corporate relocation, and that she expects both the in-town and suburban markets will be hot markets as we recover from the pandemic. However, we are sobered by Ellen’s observation that the pandemic has highlighted the extent to which yesterday’s solutions like the high-speed large-cab elevator that made possible the high-rise office and apartment buildings are the cause of today’s functional obsolescence.  Ellen cited the example of one large building which, if limited to four people per elevator cab, would take five hours to fill or empty.

Lee Cuthbert, Location Specialist, Film Video and Music for Georgia Department of Economic Development.

Lee Cuthbert also spoke to us about the Georgia film industry from a place of comfort and confidence. She pointed out that from 2007 to 2019 direct spending from the film industry in Georgia has increased by 2100%. In FY 2019 there were 399 shows filmed in Georgia.  We now have over 3.2 million SF of stages, with over 1 million SF of that purpose built, and almost all of our stage space is booked. Some of the keys to the success of the industry in Atlanta are: development of economic development bond financing as inducements for producers; a wide variety of environments to look like other places in our country; a deep and skilled workforce (with high salaries); and empty real estate after the 2008 market distress. One of the most impressive indirect and lasting economic benefits from the growth of the film industry in Georgia is the impact of film tourism on communities like Conyers, Covington and Savannah. Lee pointed out that when “The Walking Dead” began filming in Senoia there were six open stores along Main Street. Today there are 85 open businesses, and the before and after pictures in her presentation are dramatic.

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Gap Will Exit Mall Locations by 2024 in Shift to E-Commerce

Source: Connect Commercial Real Estate

Gap Inc. plans to phase out its shopping mall presence, closing 350 Gap and Banana Republic mall locations by 2024. The closures, representing 30% of the combined store count for the two brands, are expected to be 75% completed by the end of fiscal 2021.

In an investor presentation last week, executives at San Francisco-based Gap emphasized a shift to digital channels. The company noted that it’s ranked number two in U.S. apparel e-commerce sales, and plans call for further channel penetration in the next few years.

By the end of fiscal 2023, Gap also expects to derive 70% of its revenues from its Old Navy and Athleta Brands, up from 55% in fiscal 2018.

Phasing out mall locations doesn’t mean walking away from brick-and-mortar retail, though. As part of a long-term omnichannel strategy, Gap plans to leverage its network of 3,000 physical stores for local delivery and pickup.

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