CREJ

Page 38 — Office & Industrial Quarterly — June 2021 www.crej.com ...and much more! CAM Services is Proud to Offer the Following Quality Services Multiple Service Discounts Available Power Sweeping Parking Lot Sweeping Snow Removal Day Porter Services Tenant Finish/Improvements Interior/Exterior Building Maintenance Power Washing Power Scrubbing Fence Repair Stormwater & Erosion Control Signage Repair Curb & Sidewalk Repair Parking Blocks Construction Clean-up Water Damage Clean-up Property Security Temporary Fencing Barricades Rubber Removal Airport Services Event Services Silt Fence Fully Bonded Phone: 303.295.2424 • Fax: 303.295.2436 www.camcolorado.com 24 Hours/Day, 7 Days/Week State-of-the-art equipment, with GPS tracking for your convenience n Question: I am acquiring an older, infill industrial property that is well occupied, but the rents areway belowmarket and the entire rent roll expires within the first 30 months. Howmuch can I push the leverage to reposition the asset? We recently financed several of these types of deals and have seen a variety of structures based upon borrower preferences. For borrowers looking for maximum leverage and short-term floating-rate options, up to 80% loan to cost is available. Pricing is very attractive in the 4.5% to 4.75% range, and the lend- er will fund 100% of the future capital expenditures, tenant improvements and leasing commissions.The traditional structure is a three-year interest-only termwith two one-year extensions. Debt funds have been very competitive in this space. Most debt funds have a minimum loan size of $15 million, but there are several national groups that now are competing in the $5 million to $15 million space. Borrowers also can benefit from a short-term exit with minimal prepayment penalties.With debt funds, these penalties range from 12-18 months’ minimum interest. n Question: Are lenders comfortable with large cash-out refinances in this envi- ronment? This topic historically has been a sen- sitive one that can vary lender by lender but also is driven by the general dynam- ics of the capital markets, as well as product type. For high-quality industrial assets with stable, predictable cash flow, lenders are very comfortable with large cash-out refinances, subject to strong debt yield and debt coverage metrics. Lenders will ask about the borrower’s basis, howmuch capital has been invested into the property, the age of the buildings and years of ownership. All these factors play into the ability to pro- vide a borrower with proceeds to return equity, and the general rule of thumb is that lenders like to be less than 85% to 90% of total cost.There are exceptions to every rule, however, and we have seen 100% LTC loans in this environ- ment. Given the pending impacts of new tax reform, we expect this question to become more important and more frequently asked as the return of equity from loan proceeds are non-taxable dol- lars. The overall theme here is that lend- ers want more industrial assets on their balance sheets and are willing to go out- side the box in order to win deals and increase their exposure. Just as equity investors are getting aggressive to pur- chase these types of assets in large quantities, lenders are just as aggressive and have the same intentions. s pdonahue@essexfg.com cwilliams@essexfg.com Donahue Continued from Page 26 shingle keep coming to Colorado. “Denver is in the top five of in-bound net positive migration,” Ressler points out. That’s another way of saying way more people are moving here than leaving, and the demographic skews younger, which proved to be the cata- lyst for the industrial market’s overall health since the outset of the pan- demic. That is, the younger demographic groups already here and those on their way from somewhere else have been using e-commerce almost all their lives. These “digital natives” are the first American demographic groups born into the Internet age. It’s always been more natural for them to pur- chase goods online as a viable alterna- tive to the brick-and-mortar option. The pandemic amplified this practice for millennials and younger while baby boomers and older generations were forced to adapt virtually overnight as the lockdown dragged on. This is not to say that boomers and senior citi- zens were digitally illiterate. It’s been a mixed bag for those demographic groups, but they have adapted very quickly. This “flight to digital” is now a standard across most American demo- graphic groups. The pandemic brought e-commerce to the fore as the pre- ferred method of obtaining goods and services with low-touch and no-touch delivery. Subsequently, the industrial landscape began to swell in order to accommodate the new normal. Suffice it to say, good industrial space became hard to get in metro Denver. It’s still hard to get. This has not been lost on investors already bullish on that sector. Land is a finite commodity even in the expansive northern and eastern suburbs of Denver. But Denver has more of it available than most other cities of its size, and certainly more than larger metropolitan cities on or near the coasts. Much of that land zoned for industrial use has been fall- ing off the market for years. Investors keen on that advantage are now reap- ing stellar profits as developers scram- ble for more product. Again, the pandemic is not solely responsible for this most current development wave, but it hasn’t hurt. Quite the contrary, in fact. Much of that available space is preleased or specified for build-to-suit, both of which have spiked as the pandemic has worn on. Even within those pack- aged options, new methods of adaptive creativity have made the sector more attractive to users with virtually no time to build. “How do you move a 50,000-square- foot industrial tenant next week? The answer is you can’t. You just can’t do it in this market. There’s no space left,” said Peter Brumley, project manager for Denver-based Aberdeen Construc- tion. Aberdeen for years has been touting the versatility of specification space, or “spec space” for industrial proper- ties, which goes outside the traditional methods of design, construction and leasing. Although industrial spec spac- es or spec suites have been around for a few years, the pandemic has pushed this option to the front of the line for users on the fast track. The practice is rather simple and has been used extensively in the office market for decades. The essence is that a portion or all of the space is built out with finishes before a tenant even sees the overall property. Up to 10% of industrial buildings are adap- tive for spec suites. Since the core and shell of the building already is standing, the spec suite can forego the back-and-forth design process, thereby saving valuable time for the tenant to begin operating much more quickly and, usually, more economically. “Tenants are becoming much more sophisticated,” Brumley said. “If the design aesthetic doesn’t include high- end finishes, they realize what a huge benefit the spec space can be, as is.” Everybody has become much more sophisticated since last March. It’s been a necessity. A pandemic will do that. And let’s face it, despite the reopening of America, nobody knows what impact COVID-19 will have on commercial real estate in the near future. As far as e-commerce as the principal driver for industrial real estate growth here, don’t expect con- sumers to go back to pre-pandemic purchasing levels. There is too much mutual benefit for that to happen. s jrayburn@fountainheadcommercial.com lburnett@fountainheadcommercial.com Rayburn Continued from Page 30