I came across and interesting article written by Gail Kalinoski of the Commercial Property News titled Orlando Industrial Market Booms. It is an interesting update on a very robust market in the SE United States.
The Alberta industrial real estate market continues to be on fire. Check out an article recently written by Nicole Dunsdon of The Globe and Mail to understand the current situation for big box industrial in Calgary.
The Basics - Brownfield properties are simply a parcel of land that has been environmentally contaminated by either an occupant on the land or a neighboring occupant whose contamination has managed to leach onto the parcel of land, often through ground water movement. This is the ugly family member who nobody wants to hear from or speak about.
Brownfield’s are typically created due to manufacturing facilities that were operable on or close to the land and at some point, a leak or spill from processing whatever widget has entered the soil. Many times the culprit can be an underground tank that was used to store some sort of liquid and the integrity of these tanks becomes compromised. Presto, that parcel of land qualifies as a Brownfield site.
The Challenge - What to do with the ugly family member? There was a great line in the movie about a horse named Seabiscuit. At a point in the movie, the star happens upon a washed-up trainer with a horse that falls into the same category. The eventual line came from the trainer who references his equally downtrodden horse. “You don’t throw away a life just because it is a little banged up!” There are select group of developers/investors throughout North America (very few of which reside in Canada) who have the capabilities (experience, environmental intelligence, understanding of the Ministry of Environment and their processes, guts, etc.) to confidently understand the specific challenges associated with a given Brownfield site (each is a different story) and follow through with a purchase of the property and an eventual remediation plan.
Brownfield Trend Comments – As cities become larger in scope and Greenfield Development continues to be pushed further away from them, simply due to the land supply or lack thereof, the feasibility of redeveloping properties that are located in or much closer to city cores, becomes more compelling. As a result, there has been a tremendous trend towards taking the risk, spending often large amounts of money and dedicating considerable time towards the remediation of Brownfield sites so that they may enjoy a higher and better use that typically maximizes the value of the property itself. Given the rapidly changing and increasingly competitive global economic environment, many manufacturing concerns have closed all or part of their operations in favor of less expensive manufacturing options in other parts of the World including China, India and Mexico. This of course causes the vacating of buildings that become some of the fuel for the redevelopment trend.
Canada's top industry gathering, the annual Real Estate Forum, is set for November 28 - 30, 2006. The main sponsor for the event is Real Property Association of Canada and some of the other regional sponsors include BOMA, CCIM, SIOR, NAIOP, etc. We will be posting interesting information garnered from the various sessions.
The event regularly attracts tremendous speakers (Sherry Cooper,
Brantford, ON, located West of the GTA, has been a bustling hot-bed of industrial development activity for the past 2 - 3 years. This development has focused predominantly around logistics & distribution uses vs. manufacturing. This trend continues with the announcement from Sonoco that they are closing a local plant. The market continues to adjust and investors along with end users appeear to successfully be adjusting accordingly.
Throughtout the GTA, we continue to see older industrial facilities being redeveloped. Although the City of Toronto is placing bigger efforts than ever to maintain existing designated employment lands for just that..employment, there has been a dramatic number of brownfield sites that are beng redeveloped as residential. Many traditional developers swear that the "Big Money" is in redevelopment properties that cater to residential intensification. Check out an article written by a real estate reporter named Theresa Boyle of the Toronto Star.
The sale leaseback is a method being employed by more and more companies as an effective means of freeing capital tied up in corporate non-core assets such as real estate. Often capital allocated to non-core competency line items is in ineffective use of vital capital and hinders the ability to invest in those competencies that are core to the business and its survival/prosperity.
Sale leasebacks are an opportunity to address these concerns and enhance the balance sheet by raising cash without the costly time-consuming process of a new debt issue, and without restrictive covenants or other major managerial encumbrances.
Primary capital reasons to consider a sale leaseback include:
1. 100% fair market value versus 60%-80% with conventional debt sources
2. Improve earnings - recognizing the appreciated value of your real estate
3. Expand locations - increasing market share without depleting corporate capital
4. Special investment opportunities - provide funds for other business initiatives, mergers, acquisitions, etc
5. Off-balance sheet - favourable accounting treatment
6. Operational flexibility - maintaining flexibility for future real estate requirements
Enormous and very impactful news this week with the Conservative Canadian government announcing that Income Trusts will be taxed in the future. The stock markets took a pounding the next day in Canada with the TSX having it's largest single drop in 2 years. Good news for our industry in that REIT's will not be subject to these taxes as long as they meet certain thresholds. Click here for a look at a press release from REALpac regarding this very subject and/or click here for an article in the Globe & Mail.
Standard Life has made the decision to transfer the real estate fund management team for the Pooled Real Estate Fund (PREF) to Standard Life Investments (Real Estate) Inc. here in Canada. The team will be located in Toronto forming part of, and reporting directly to the Standard Life Investments Global real estate team in Edinburgh, Scotland.