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Eugene/Springfield MSA Market Overview
Presented to CCIM Oregon/SW Washington ChapterApril 5, 2016
by Leah C. Callahan, [email protected] | office: 541-687-1938
Eugene/Springfield MSA Market Overview
• Population trends: growth and demographics
• Economic conditions: business growth, unemployment, wage growth
• Trends: 2004-2008, 2009-2013, 2014-2016
• Single-family, multi-family, industrial, office, retail
• Looking forward: developments and trends on the radar screen
Population & Demographics
• Avg. annual growth rate: moderate relative to other areas, manageable
• Trends to watch: in-migration, ages and stages, competition and collaboration
• Lane Co. communities planning for continued growth
Economic Conditions
• Improving business outlook: translating into sustained job growth
• Economic base continues to diversify
• Local start-ups and established businesses offering new opportunities
Market Trends: Single-Family Residential
• Then: Land prices had trended as high as $350K/acre prior to 2009. Recession and credit freeze led to effectively zero sales for 3 years.
• Since 2014-15: demand has recovered and optimism has returned, lower-price lots have been absorbed, upper-price lots remain available but have higher development costs (risk).
Eugene: ~5,000 new units in 2000-15,60% Univ. of Oregon campus-oriented
Springfield: ~1,100 new units in 2000-15
Market Trends: Multi-Family Residential
• Strong demand for affordable housing throughout market area
• Rents for Springfield’s new units may surpass historic feasibility challenge
Market Trends: Industrial
• Then: industrial occupancy and prices had been strong pre-recession, vacancy trended to historic lows in 2006-07, swinging to 10% by end of 2009 and 13% by 2011.
• Since 2014-15: modest improvements but still down from pre-recession.
• Marijuana production: effects on demand, pricing for suitable properties
• Recession had significant impact on office occupancy and rents
• Absorption of existing supply throughout Eugene/Springfield from owner-users or investors partnering with incoming tenants, picking up pace since 2014
• Pressure on space rents expected to spur new development
• Major redevelopment and new construction during recession using mix of private and public financing
• Recent sales of downtown commercial properties: buyers/ investors perceive stability in long-term demand, rents, occupancy
Market Trends: Office
Downtown Eugene revitalizing Supply & Demand
Market Trends: Retail
Location, location, location
• Redevelopment of sites in prime locations is creating new supply to meet post-recession demand
• $43 million “de-malling” of The Shoppes at Gateway brought new retail brands to the area: largest power center between Portland and Sacramento, 94% leased
Supply & Demand
• Vacancy is improving as retail recovers
• Some spaces in non-prime areas have long-term vacancy due to various factors
• Long-term, population growth and demographics will create new demand
Hot Topic: Overall Capitalization Rates
• Eugene/Springfield rates track regional trends, but also type/property specific
• Market prices show overall rates are declining on the whole, but Eugene/ Springfield remains a secondary market area for many investors
• Forward-looking sentiment varies: pessimists point to possible bubble,optimists point to appetite for cash flow and return vs. perceived risk
Looking forward: 2H16 and beyond
• Community planning and growth: housing, transit,Glenwood, Springfield Main Street, TrackTown USA
• Government, emerging tech, and social impacts: sharing economy, cooperative living & business, cannabis legalization, wage & health care changes
• Local impacts of regional, national, and global activity: urbanization, climate change, resource scarcity
Thank you!
For further information: www.duncanbrown.com
Commercial and income property appraisalResidential property appraisal
Appraisal reviewsCondemnation consulting
Feasibility studiesLitigation/expert testimony
PRINCIPALS
Rick Duncan, MAI, SRA Corey Dingman, MAI Jasen Hansen, MAI
ASSOCIATES
Alan Clark Tom Morgan Leah Callahan, MAI
Clint Becraft, MAI Zoe York, MAI Anna-Lena Vikstrom
Tristan Cory
ASSISTANTS & STAFF
Barbara Shields, Appraiser Asst. Rob McLaughlin, Appraiser Asst.
Megan Beveridge Cathy Patton Nicole Autry
Blake Elliott
App
rais
al G
roup
of C
entr
al O
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n,
LLC
CENTRAL OREGON
REAL ESTATE MARKET
PRESENTATION FOR
CCIM OREGON / SW WASHINGTON CHAPTER
APRIL 5, 2016
BY
GREGORY W. MOORE, MAIAPPRAISAL GROUP OF CENTRAL OREGON, LLC
541-480-6527
General Trends
Population • Tourism • Economic Recovery / Growth
Market Segment Analysis
Residential • Office/Retail/Industrial • Hospitality • Resorts • Apartments
Notable Projects / Events
OSU Cascades Campus •Significant Development/Events • Bend UGB Expansion
Looking into the Future
Agricultural Market
Gorge Area Information
Hood River • White Salmon / Bingen • The Dalles
Appraiser’s World.
OVERVIEW
CENTRAL OREGON TRENDS
Universal Statistical Line Chart for Bend / Central Oregon real
estate trends:
Deschutes County (Bend
MSA) Population passed the
170K mark in 2015, looking
toward 190K by 2020.
City of Bend Population
passed 80K mark in 2015,
again.
Redmond Nearing 30K.
Population and
demographics are making
Central Oregon more
acceptable to larger regional
national firms such as Trader
Joe’s, 5 Guys, Walgreen's (2
new stores in 2015), etc.
ROLLERCOASTING:
POPULATION
Rober ts F ie lds Stat is t ics up wel l over 50K passenger r ides per year, f rom 44,101 dur ing the h igh pr ior to the recession.
Overnight Lodging Taxes : 23% increase over past year, tw ice the state -wide increase.
Not just go l f , sk i ing & f ish ing anymore. Mt . b ik ing, rock c l imbing, Les Schwab Amphitheater music events , spor ts events… al l major cont r ibutors to economy. Improved “shoulder months” .
$10 Mi l l ion whi tewater park wi th ar t i f ic ia l wave at Old Mi l l D is tr ict , another draw to the reg ion.
Beer / D ist i l led sp i r i ts tours - 31 breweries / 3 d ist i l lers .
Limited mult i - family & af fordable housing chal lenging for ser v ice workers .
ROLLERCOASTING:
TOURISM
E c o n o m ic r ec ove r y c o m p lete , w i t h 5 . 1 % u n em p loy m ent .
Desc h u tes C o u n t y a d d ed 4 , 1 50 jo b s ( 5 . 9% in c r ea se )
d u r in g 2 015 , w / 7 3 0 in l e i su r e & h o sp i t a l i t y, 6 6 0 in
ed u c a t io n/ h ea l t h se r v i c es , a n d 3 9 0 in m a n u f a c t u r in g .
Old School:
Wood Products
Tourism
Bubble:
Mortgage Brokers
Builders
New School:
Brewing & Disti l l ing (31 breweries & 10 disti l lers… total of
more than 1,100 employees).
Advertising/Marketing (G5 Search Marketing, Navis, etc.) .
Telecommunications (Consumer Cellular, TRG Customer).
Software Design (Bend Studio / Sony Computer Entertainment).
Alternative Energy (PV Powered, Zamp Solar, BasX, etc.) .
Pharmaceutical (Bend Research, Agere, Medisiss, Dent
Instruments, PCC Schlosser).
Aviation (Epic Aircraft , Windward Performance, etc.) .
OSU Cascades Campus.
Data Centers (Facebook & Apple).
BEND RECOVERING WITH DIVERSITY
Bend’s median home pr ice leapt
29% f rom 2004 ($217,500, just
surpassing Por t land’s ) to over
$350,000 in September of 2006
(highest apprec iat ion of any c i ty in
the ent i re Uni ted States dur ing
2006) .
Values peaked at $373,925 in 3 rd
Qtr of 2006, then p lummeted 53%
to $177,558 in the 1 st Qtr of 2011
( inc luding the Uni ted States’ worst
dec l ine in home values dur ing
2009) .
Current median SFR = $334,595,
ref lect ing a recover y of 88% f rom
the low.
Current SFR act ive inventor y in
Bend = 432 houses , down f rom
1 ,669 in 2008.
ROLLERCOASTING:
RESIDENTIAL MARKET
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
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Bend's Improved Residential Sales TrendsMedian Home Sale Price by Annual Quarter
0
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1800
Jan
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Bend's Single-Family Residential Listing Inventory
Relat ively l i t t le market act iv i ty in past couple of years as weaker owners have a l ready lost thei r proper t ies , and st ronger owners have held on, wai t ing for va lues to recover.
Land is hard to come by:
Industrial - only 2 tracts of industrial land available ($10.50 & $34 / sq. ft .).
Office & Retail – Recent sale near OSU @ $28.11/SF; pending in Old Mill Area @ $44/SF.
Only 12 act ive l i s t ings of investment grade improved of f ice , reta i l o r industr ial proper ty in Bend (LoopNet) .
Lease Rates :
Office & Retail: Very wide range, $15-$30/SF.
Industrial: Typically over $0.60/SF for newer leases.
Vacancy ( so u r c e : C om p a s s C om m e r c ia l ) :
Office: 6.8%
Retail: 5.2%
Industrial: 5.9% (20%+ during recession)
OFFICE, INDUSTRIAL & RETAIL
81 % h o te l o c c u p a n c y r a te in B en d f ro m J u l y t h ro u g h Oc to b er
o f 2 015 .
To t a l o f m o r e t h a n 6 6 0 ro o m s in 8 h o te l s in t h e h a r d p la n n in g
s t a g e , u n d er c o n s t r u c t ion , o r c o m p leted s in c e 2 014:
114-room Hampton Inn & Suites , Old Mil l District, opened in 2014
64-Room My Place Hotel in the Old Mil l District (extended stay business)
– opened in 2015.
50-Room Tetherow Lodges – luxury rooms at Tetherow Resort – opened
2015.
105-room Marriott (Springhi l l Suites, four story bui lding) @ Crane Shed
Commons site in the Old Mil l District – Under Construction.
120-room Best Western Premier @ Century & Mt. Washington Drive, near
OSU – Cascades. – Pre-development.
100-120-room hotel by InnSite Hote l Management Group at NE Corner
Olney Avenue & NW Wall Street, on the north end of the CBD - approved
in 2015.
66-room luxury hotel , Huntington Lodge , at Pronghorn Resort – under
construction.
41-room addition to McMenamins Old St. Francis School (wi l l have total
of 65 rooms after addition) – Under Construction.
Riverhouse sold in 2015, new owners spending $10 Mil l ion in
renovations to the 220 rooms, possibly adding new rooms .
Over n ig h t l o d g in g l im i t s wer e en a c ted in 2 015 r es t r i c ted a ny
n ew ove r n ig h t r en t a l s w i t h in 2 5 0 ’ o f ex i s t in g r en t a l s ( i n c lu d e
va c a t io n r en t a l S F R s ) .
HOSPITALITY
T h ese r eso r t s m a ke u p m u c h o f t h e d eve lo p m en t o n g o in g in u n in c o rp o r ated Desc h u tes a n d C ro o k C o u n t ies , m ixed p r im a r y r es id en t s , 2 nd h o m es , a n d r en t a l p ro p er t ies .
Tetherow – making up much of new, high-value residential development in Bend, new hotel.
Pronghorn – houses going up again, new management has solid footing, new hotel going up.
Caldera Springs – seeking approval to add 395 more lots.
Remington Ranch sold to investors in 2015 for just $2,500,000). Entitled / fully vested (2000+ acres, 731 home sites, 27 holes of golf, 400 units of lodging), partial infrastructure, 9 holes cut. Buyers to sit on it. (same buyers acquired site that may be used for new data center in Prineville, and 6-Shooter Ranch in Crook County (35k+ acres - $22,250,000)).
Thornburgh Ranch – Going through courts to determine if project has been “initiated”, and therefore whether entitlements are still valid.
Crossing Trails – entitlements fully vested for 500 SFRs, of fered at $6,250,000.
DESTINATION RESORT MARKET
Va can cy r a tes h ave r em a in ed we l l b e low 2 % fo r
p a s t few yea r s . Ave r a g e r en t s a r e a ro u n d
$ 9 00 - $1 ,000 fo r 3 - b ed u n i t s , $ 8 00 -$850 fo r 2 -
b ed u n i t s . Un i t s ove r $ 2 , 000 to u g h to r en t .
A c t i ve f o r s a le : c u r r en t l y n o n e .
N ew P r o je c t s – m o r e t h a n 1 , 5 00 n ew u n i t s
p ro p o sed in 2 015. S o m e o f m o st n o t a b le
p ro jec t s in c lu d e :
228-unit Seasons at Farmington Reserve in
Southeast Bend. 6 buildings, $650-
$1,350/month. – Under Construction.
208-unit Linnea Apartments in Northeast Bend.
153-unit Bellevue Crossing in Northeast Bend.
144-unit complex in southeast Bend, made up of
15 separate buildings. – Under Construction.
104-unit apartment complex (Sage Springs ) of f
Boyd Acres Road in Northeast Bend. – Under
Construction.
132-unit NWX Apartments , a complex of six three-
story buildings, targeting upscale renters in
Northwest Crossing – construction starting in
June.
48-54-unit Pacif ic Crest Affordable Housing ,
Northwest Crossing – construction starting in
2016.
APARTMENTS – “NO VACANCY”
Capi ta l izat ion rates are ref lect ing a hot market w i th ant ic ipat ion of increas ing renta l rates and values.
Trends are somewhat d i f f icul t to quant i fy w i th st rong focus due to l imited number of sa les , w i th h igher -qual i ty / bet ter leasehold interest proper t ies less l ike ly to be made avai lable . Th is i s par t icular ly the case wi th reta i l and of f ice , where sales are par t icular ly th in .
Al l act ive l i s t ings of o f f ice/reta i l/ industr ia l in Loopnet show cap rates between 5% & 6%.
Most recent apar tment sa les ind icat ing cap rates of 4 .4% to 6 .6%, focusing under 6%.
CAP RATE TRENDS
Recent Capitalization Rate Comparable Sales
#Situs Date Acres Bldg Sq. Ft. Occupancy
Location Price Land-Bldg Age Cap Rate
1200 NE Greenwood Ave. –
Strip Retail11/30/15 0.32 5,546 100%
Central Bend $999,900 2.52 1972, renovated 6.3%
262915 NE 18th Street –
Multi-Tenant Flex Indust.9/15/15 1.43 17,831 100%
NE Bend Industrial $2,370,000 3.49 2004, 7 years 5.4%
31735 NE Highway 20 -
1-Tenant Wholesale6/29/15 1.52 18,080 100%
E Hwy 20 Bend $2,110,000 3.66 1995 7.5%
4698 NW York Dr.
1-tenant office5/8/15 0.54 7,283 Fee Simple
Northwest Crossing $1,600,000 3.23 2005, 5 yrs 7.1%
5231 SW Scalehouse Lp
Multi-tenant office7/13/15 0.76 11,134 100%
Old Mill District $1,825,000 2.97 1999, 10 years 5.0%
Firs t enro l lments in 2001 .
Business community, inc luding a s t rong input
f rom commercia l brokers , was a large par t of
the dr ive for the campus, and he lped ra ise $1
Mi l l ion in one month to he lp secure the new
campus.
Long process of s i te se lect ion, or ig inal ly to use
par t of large , c i ty -des igned mixed -use
deve lopment on nor theast s ide of town ( Juniper
Ridge) , but lack of ser v ices and des i rabi l i t y
resul ted in OSU renewing s i te search
throughout town, focus ing on central locat ions ,
with one botched ef for t to buy an ex is t ing
bus iness campus (Mi l l Po int ) .
Opening new campus in 2016 -17 school year at
on Southwest s ide of town, par t ia l ly us ing an
o ld pumice mine s i te w/ 44K sq. f t . academic
bui ld ing , d in ing and res idence hal ls to fo l low in
Winter 2017.
Current enro l lment at 1 ,157. Expand to 3 ,000
to 5 ,000 by 2025.
16 undergraduate majors , 4 graduate
programs.
OSU CASCADES
Bui ld ing permit act iv i t y is recover ing (19 -20 commercia l permits per year in 2014 -15, in Bend) , up f rom just 8 in 2011 , but s t i l l far of f the f igures of 2005 -2007 (80 -102 per year ) .
Crane Shed Commons (mult i -bui ld ing , 4 -s tor y mixed use , 105 hote l rooms, 50,000 sq. f t . C lass A of f ice ) at O ld Mi l l D is t r ic t . 1 st major profess ional of f ice pro ject in years . Of f ice rents expected at $2.25 -$2 .50/SF, NNN.
Market o f Cho ice grocer y s tore between Colorado & Ar izona Avenues , west of the Bend Parkway, 35,000 -sq . f t . market wi th associated st r ip reta i l . – Under Const ruct ion .
St . Char les Med ica l - $14 Mi l l ion medical campus on south end of town, near Wal -Mar t .
Base Camp townhomes (Pear l D is t r ic t s ty le 3 -s tor y townhouses with smal l ADU on 1 st f loor ) , near r iver & O ld Mi l l D is t r ic t – wil l test Bend market acceptance of concept .
Fred Meyer Anchored 51 -acre mixed -use pro ject on nor th end of town in “Golden Tr iangle” , a lso to inc lude a hote l , senior housing , reta i l , etc .
BasX (a l te rnat ive energy ) conver ted former Wal -Mar t in Redmond to indust r ia l manufactur ing (wind turb ines , etc . ) .
NOTABLE DEVELOPMENTS
FOCUS OF ACTIVITY
P r o c e s s f o r t h i s U G B e x p a n s i o n h a s b e e n o n - g o i n g
s i n c e 2 0 0 4 .
2 0 0 9 : 1 s t C i t y p r o p o s a l , i n v o l v i n g 8 , 4 6 4 a c r e s ,
w a s s u b m i t t e d & d e n i e d b y L C D C .
S t a t e f o r c i n g h a n d w i t h h i g h - d e n s i t y & i n - f i l l .
C u r r e n t t e n t a t i v e p l a n i n v o l v e s 2 , 1 5 0 a c r e s .
2 0 % o f c u r r e n t p r o p o s e d a c r e a g e f o r e x p a n d e d
U G B i s o n t h e W e s t S i d e , b u t d e e p p o c k e t
o w n e r s o n t h a t s i d e o f t o w n m a y a p p e a l t h e
p r o c e s s a s a r b i t r a r y , a n d f u r t h e r h o l d u p t h e
e x p a n s i o n i n t h e c o u r t s .
S t e e r i n g c o m m i t te e m e e t i n g A p r i l 2 1 s t f o r f i n a l
a p p r o v a l b e f o r e s e n d i n g b a c k t o D L C D . L u c k y t o
h a v e s t a t e a p p r o v a l b y 2 0 1 7 . S h o v e l r e a d y b y
2 0 2 0 ?
I s s u e i n s t r um e n t a l i n t h e t i g h t e n i n g o f t h e
m a r k e t a n d e s c a l a t i n g r e a l e s t a t e v a l u e s a n d
r e n t a l r a t e s , a l s o l i m i t i n g t h e p o t e n t i a l
e x p a n s i o n o f t h e e c o n o m y .
URBAN GROWTH BOUNDARY EXPANSION SAGA
S t i l l a s m a l l i s h e c o n o m y , h e a v i l y i n f l u e n c e d b y t o u r i s m , a n d s u b j e c t t o r e c e s s i o n s m o r e t h a n a v e r a g e .
H o w e v e r , w e c a n e x p e c t a l i t t l e l e s s r o l l e r c o a s t e r i n t h e f u t u r e , e v e n i f w e w o n ’ t h a v e a n e n d l e s s w a v e t o r i d e .
L a r g e r p o p u l a t i o n , m o r e e c o n o m i c d i v e r s i t y , n e w O S U c a m p u s , b e t t e r c o n n e c t i v i t y t o o u t s i d e m a r k e t s , a n d r e g i o n a l r e c o g n i t i o n .
S h o u l d g e t s o m e r e l i e f f r o m a U G B e x p a n s i o n , h o w e v e r , w e s h o u l d n o t e x p e c t t h e o v e r -b u i l d i n g c h a r a c t e r i s t i c o f t h e 2 0 0 0 s .
C e n t r a l O r e g o n s h o u l d b e b e t t e r s u i t e d t o w o r k t h r o u g h n e x t r e c e s s i o n , p o s s i b l y m o r e c o n s i s t e n t w i t h h o w H o o d R i v e r w o r k e d t h r o u g h t h e l a s t r e c e s s i o n .
S u r f B e n d ! ! !
LOOKING INTO THE CO’S FUTURE
Centra l Oregon
Market held up much better through recession than all
other market segments, particularly for farms geared
around production rather than residential / recreation.
Particularly strong demand for hay farms in Central
Oregon.
Recreation (fishing / hunting) ranch & high -value
residential estate markets slowest to recover, but we have
seen some very large sales over the past few years (such
as the 35K+ ac 6-Shooter Ranch @ $22,250,000 in 2014).
The Gorge
Few orchard sales, but major new development (cherries,
Honeycrisp apples, pears & blueberries) occurring in
Dallesport and Wamic despite challenging growing
conditions over past several years.
Challenging labor market and Federal regulations for
orchardists.
130-ac Celilo Vineyard sold to Columbia Valley (WA) winery
for $2,950,000 (roughly $30,000/ac vineyard), Pheasant
Valley sold, Hood Crest & Cathedral Ridge adding to their
winery operations.
AGRICULTURAL MARKET
Weathered recession extremely well by missing the development bubble during 2000s because of physical/legislative constraints on growth, plus the unusually diverse economy and surge in industry related to drones and recreation. Very low vacancy.
88-room Hampton Inn and 20,000-square-foot commercial building, Nichols Landing at the southern edge of the port area.
50-room DeeTour Hotel approved w/ music venue w/ 400+ parking at former mil l site in the mid -val ley.
120,000-sq. ft . manufacturing faci l i ty for drone maker, Insitsu , in Bingen, WA.
50k sq. ft . food processing faci l i ty under construction by Puff Factory in Odell – under construction.
Key Development acquired the 2.1 -acre Expo Center (building to be razed) in the Port area in March 2016 for $1.62 Mil l ion ( land @ $17.71/sq. ft .) to provide parking for two new 15,000-sq. ft . l ight industrial bui ldings.
Newer office & retai l rental rates @ $1.40 -$1.80 per sq. ft . , NNN, some higher for specialty space & high -exposure.
Newer industrial rental rates @ $0.75 -$1.10) per sq. ft . , NNN.
Limited Cap rate info available. (6.05% -7.36% in office sales ) .
HOOD RIVER
WHITE SALMON/BINGEN
Hospitality - New 80-room Fairfield Inn & Suites .
Mid-Columbia Medical Center (MCMC) - providing new
services at Water’s Edge complex in Lone Pine Village ,
and planning to anchor majority of space in total
renovation of Craig Office Supply Building .
Downtown Renovations : 17K sq. ft. Craig Office Supply
Building, 54K sq. ft. Commodore II Building .
Vacancy Rates - still high in the CBD, most 2nd floor space
vacant, w/ rental rates for office & retail below $1 NNN.
Lone Pine Village – mixed-use project with variety of
concerns, from pending ODOT round-about off-site costs
to archeological issues, to questionable demand.
Granada Theater Block – developer proposed a $25-
Million 117-room Hilton/hotel conference center, but their
request for the renewal agency to sell the property to
them for $1 was rejected. May still have legs.
THE DALLES
L e n d e r W o r k
Focused around refi & acquisit ions, with construction activity just starting to gain steam.
Sti l l very l i tt le activity (as in none) on development land in Central Oregon, from AGCO doing between 12 & 20 subdivision appraisals per year in the peak of the 2000s, to basical ly no RFPs for several years.
Bank officials report that lenders are most open to lending in hospital ity, apartments, owner -user projects, and high -credit tenant investment properties.
A p p r a i s a l T u r n T i m e s
Clients became used to short turn t imes for appraisals during the recession and recovery, and appraisers are getting push -back to get del ivery dates quoted out to healthy schedules, despite heavier work loads. Some appraisers sti l l quoting unrealist ic del ivery to get jobs, but there is a reason why some are busy, and why some not.
Tough to make money off of assistants in the current market, fewer are being taken on, leading to lower numbers of new appraisers coming into industry.
Clients should expect healthy delivery schedules for quality appraisers to be AT LEAST 3 -4 weeks in normal practice ( i .e. , not rush jobs), i f not up to 6 weeks or more for quality appraisers as market continues to strengthen.
APPRAISER’S WORLD
It has been a pleasure to provide some information regarding our local market conditions.
We can’t do our job without the incredible, professional help we get from the commercial broker community when verifying sales/leases, getting feedback on market trends, and analyzing the highest and best use for properties. We always look forward to returning the favor, any chance we get.
Please refer to our website for more information, or call / e -mail for any assistance:
Gregory W. Moore, MAI (541-480-6527)Commercial/Industrial • Development • Orchards/Vineyards • Farm/Ranch • Resort/Recreation
greg@agco-appraisal .com
Marlo T. Di l l , ARA (541-447-6641)Farm • Ranch • Timber
marlo@agco-appraisal .com
Appraisal Group of Central Oregon, LLCAppraisal / Consult ing / Review / Lit igation Support
www.agco-appraisal .com
THANK YOU
P r e s e n t e d b y :
K ather ine Powe l l B anz , MA I
2 9 2 5 R ive r R o a d S , S u i t e 2 7 0
S a l e m , O r e g o n 9 7 3 0 2
( 5 0 3 ) 3 7 1 - 2 4 0 3
k banz@ powe l lbanz .com
www.powe l lbanz .com
Willamette Valley Market Overview 2016
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Population Trends
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2007 2008 2009 2010 2011 2012 2013 2014 2015
SALEM KEIZER ALBANY CORVALLIS
Annual % Change 2007-15
% Change 2014-15
Salem 0.72% 0.89%
Keizer 0.55% 0.00%
Albany 1.11% 0.78%
Corvallis 0.57% 1.51%
• Corvallis population growth
outperforming other communities
• Resulting in increased housing
needs which are not being met due
to restrictive planning &
development
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Unemployment
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Salem/Keizer Office Market
Analytics
Overall Vacancy
Absorption
Average Asking Rent
Months to Lease
Cap Rates
Notable New Projects
Analytics provided by CoStar
Analytic Statistics
Properties 971
Existing Inventory 8,968,156 SF
Overall Vacancy 6.6%
12 Month Absorption 225,151 SF
12 Month Leasing SF 372,802 SF
Average Gross Rent/SF $16.30/yr or $1.36/mth
Months to Lease 27 months (1st QTR 2016)
Average Cap Rate 7.3%
Under Construction 15,227 SF
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Salem/Keizer Office Vacancy & Asking Rent
Office market languished following the recession.
Market recovery began in mid-2014; remains ongoing.
Current average vacancy of 6.6%
Current average annual asking rent of $16.30/SF or $1.36/SF/mth
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Salem/Keizer Office Absorption,
Deliveries & Vacancy
Positive absorption has resulted in continued decreases in vacancy due to lack of new product.
Months to lease remains between 15 & 27 months
Most new construction has been for medical related owner/user space.
2016 brings the first speculative professional office development to Salem’s CBD
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Salem/Keizer Office Sale to Asking Price
Differential & Average Cap Rate
Sale negotiations continue to result in list to sale discounts of roughly 5 to 10%
Cap rates for professional office space have been elusive due to lack of investment driven purchases
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Salem/Keizer Notable New Development
Former Boise Cascade :
South Block Apartments
A development agreement with the City of Salem provided $749,999 in tax increment funds from the Urban Renewal Agency to assist with extraordinary development costs relating to the North Block.
Park Front – 27,000 SF 4-story professional office; cost of $8.5 million. Asking lease rate of $1.80/SF NNN ($2.45/SF Gross)
Marquis Silver Gardens - 52-bed skilled nursing facility @ SW corner of Commercial & Front St
Park Front & Marquis have a combined estimated cost of $22 million and will bring 100 +/- jobs to Salem
Park Front 27,000 SF professional office
4-story1 floor remaining to lease
Asking rent $2.45/SF gross
South Block• Completed in 2015• Stabilized• 168 Apartment Units• $779 to $1,069• 15,000 SF Commercial • Ticor Title leased 9,945
SF for $2.44/SF gross
Marquis Silver Gardens52-bed skilled nursing facility
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Salem/Keizer Notable New Transactions
After years of sitting mostly vacant, SAIFleased the former ERNST building off of Salem Parkway and Broadway for two years to house their entire staff while the existing complex in the CBD is being fully renovated at a cost of $110 million.
State of Oregon is now operating similar to the private sector, seeking large-scale market rate office projects. Best example is 2015 lease of the former Holiday Retirement building fronting McGilchrist Street SE. The Department of Justice leased 55,547 SF for $1.25/SF NNN on a 10-year term.
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Salem/Keizer Medical Office
Outperformed most other submarkets
Retirement of well established doctors & dentists has resulted in the sale of many practices and real property
Most sales to owner/users
Cap rates for investment purchases between 6% and 7.25%
Salem Health continues expansion project
New medical construction abounds; however, increased construction costs are stretching the limits of leasing feasibility
Salem Health Rehabilitation Center – Building M on Salem Hospital Campus.• 755 Mission Street SE• Former Oregon School for the
Blind site.• $15 million cost• Opened February 2016
Salem Pain & Spine Specialists 1175 Ford Street SE
Owner/User5,763 SF
Oregon Smile Care Center Lot 1 Madrona Office ParkPartial owner/user5,898 SF
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Salem/Keizer Retail Market
Analytics
Overall Vacancy
Absorption
Average Asking Rent
Months to Lease
Cap Rates
Notable New Projects
Analytics provided by CoStar
Analytic Statistics
Properties 1,469
Existing Inventory 14,976,479 SF
Overall Vacancy 4.4%
12 Month Absorption 111,115 SF
12 Month Leasing SF 1,954,874 SF
Average NNN Rent/SF $13.55/yr or $1.13/mth
Months to Lease 18 months (1st QTR 2016)
Average Cap Rate 6.1%
Under Construction 0 SF
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Salem/Keizer Retail Vacancy & Asking Rent
Market recovery began in mid-2014; leveled off
Vacancy reflects continued downward trend
Current average vacancy of 4.4%
Current average annual asking rent of $13.55/SF or $1.13/SF/mth
Large discrepancy between mature and new retail space ($12.00 vs $38.00/SF)
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Salem/Keizer Retail Absorption,
Deliveries & Vacancy
Positive absorption has resulted in continued decreases in vacancy due to lack of new product.
Months to lease remains between 14 & 18 months
New construction has been well received, but generally limited to South/Southeast Salem
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Salem/Keizer Retail Sale to Asking Price
Differential & Average Cap Rate
Sale negotiations continue to result in list to sale discounts in excess of 6% to 10%
Cap rates for retail properties have steadily declined due to increased occupancy at higher rents
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Salem/Keizer Notable New
Retail Projects
South Salem reigns supreme in market recovery:
Firehouse Crossing: Completed in 2015, achieved highest rents seen in the marketplace, reaching $38/SF –primarily pre-leased
Wilco - Former Safeway fronting Commercial Street SE – Summer 2016 completion
7 new projects totaling 500,000 SF in feasibility/planning stages
Pre-leasing is paramount to project feasibility noting prolonged absorption for existing space
Other submarkets remain lackluster, with minimal demand
Goodwill Industries purchased the NWC of Wallace Road and Edgewater Street in West Salem. Several existing buildings were demolished to make way for a 23,000 SF +/- community and training facility, and will include an 11,000 SF retail area. Completion anticipated for September 2016
Wilco – Former Safeway3285 Commercial Street SE
• 34,000 SF
Goodwill Industries• 23,000 SF training center
with 11,000 SF retail area in two pad buildings
Former Barrick Funeral Home205 Church Street SE• Purchased for redevelopment • Rumors of National Credit
Tenant w/drive-thru
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Salem/Keizer Multi-family
Market
Powell Banz Valuation is nearing completion of
our annual Salem/Keizer
Apartment Survey. The preliminary results are
presented here.
Vacancy below 3% in New and Mature
complexes!
Apartment Type Keizer Central Inner E Outer E Inner SE Outer SE South West Average
Studio - no amenities N/A N/A N/A N/A N/A N/A N/A N/A N/A
Studio - with amenities N/A N/A N/A $700 $725 $700 N/A N/A $708
1B - no amenities N/A N/A NA $654 N/A N/A N/A N/A $654
1B - with amenities $807 $1,252 $671 $775 $826 $850 $757 $919 $857
2B/1b - no amenities N/A N/A $713 $698 N/A N/A N/A N/A $705
2B/1b - with amenities $819 $825 $859 $777 $928 $925 $781 $801 $839
2B/2b - no amenities N/A N/A N/A $775 N/A N/A N/A N/A $775
2B/2b - with amenities $897 $1,633 $1,291 $933 $1,016 $921 $962 $1,033 $1,086
3B - no amenities N/A N/A N/A N/A N/A N/A N/A N/A N/A
3B - with amenities $1,105 $2,191 N/A $1,083 $1,124 $1,073 $1,198 $1,132 $1,272
Average Rent $907 $1,475 $883 $799 $924 $894 $925 $971
Vacancy Rate 1.89% 0.43% 2.42% 1.82% 1.69% 2.74% 1.56% 1.22%
Total Vacancy 1.62%
New Complexes (Constructed After 1990)
Apartment Type Keizer Central Inner E Outer E Inner SE Outer SE South West Average
Studio - no amenities N/A $606 $550 $495 $540 N/A $547 $525 $544
Studio - with amenities N/A N/A N/A N/A $575 N/A NA N/A $575
1B - no amenities $589 $649 $605 $584 $624 N/A $580 $652 $612
1B - with amenities $655 $732 $625 $637 $703 N/A $665 $732 $678
2B/1b - no amenities $730 $728 $710 $694 $698 N/A $746 $741 $721
2B/1b - with amenities $793 $821 $753 $714 $788 N/A $792 $782 $778
2B/2b - no amenities $875 $921 $850 $812 $790 N/A $775 N/A $837
2B/2b - with amenities $926 $844 $829 $837 $1,073 N/A $830 $810 $878
3B - no amenities $906 N/A $900 $793 N/A N/A $1,085 N/A $921
3B - with amenities $979 N/A $870 $917 $1,033 N/A $1,028 $1,100 $988
Average Rent $807 $757 $743 $720 $758 N/A $783 $763
Vacancy Rate 2.65% 1.66% 2.78% 1.68% 1.59% N/A 1.84% 2.05%
Total Vacancy 2.05%
Mature Complexes (Constructed Before 1990)
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2016 Rents increased in all unit types
2015 2016 % Change
Studio $537 $609 13.48%
1BR $639 $700 9.59%
2BR/1BA $677 $761 12.41%
2BR/2BA $813 $894 10.00%
3BR $957 $1,060 10.80%
Salem/Keizer Multi-family Market
Studio 1BR 2BR 2BR/2BA 3BR
Vacancy 1.56% 1.78% 1.98% 1.72% 1.62%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
Vacancy by Unit Type
$0
$200
$400
$600
$800
$1,000
$1,200
Studio 1BR 2BR/1BA 2BR/2BA 3BR
Rent Appreciation
2015 2016
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Tenant-Paid Water/Sewer/Garbage
Water/Sewer/Garbage is slowly being passed to the tenant in third party billing or flat fees. This alleviates the owner from absorbing the entire utility cost.
Trending from 2015 to 2016 shows slow implementation in mature units; whereas, new projects are more bullish.
Salem/Keizer Multi-family Market
74.5% 24.6% 37.4% 59.9%
84.4% 15.6% 45.9% 54.1%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
Mature-Included Mature-Not Included New-Included New-Not Included
2015 2016
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Salem/Keizer Multi-family Market
Price per unit & Price per SF both decreased in mature units. Likely due to location and age of the complexes within the sample
No new complex sales within the first quarter of 2016; however, 2015 showed measurable improvement over 2014; reflecting the desirable property type
Overall, capitalization rates continue their downward trend.
Mature Complexes 2008 2009 2010 2011 2012 2013 2014 2015 2016
Avg. Units/ Transaction 47 47 18 35 57 21 73 29 34
Price/Unit $50,794 $47,841 $49,697 $37,815 $46,362 $50,630 $46,739 $64,557 $52,201
Price/SF $66 $65 $71 $56 $60 $75 $60 $82 $77
GPIM 8.23 8.95 8.07 6.19 6.71 7.35 6.77 8.45 7.5
Operating Expenses (% EGI) 43.51% 40.50% 37.94% 44.15% 43.77% 40.58% 47.33% 42.83% 49.29%
Operating Expenses (per Unit) $2,651 $2,233 $2,518 $2,793 $2,841 $2,653 $3,068 $2,963 $3,251
OAR 6.60% 6.17% 6.89% 8.23% 8.06% 7.79% 7.47% 6.51% 6.53%
Days On Market 79 129 243 161 165 172 145 93 260
New Complexes 2008 2009 2010 2011 2012 2013 2014 2015 2016
Avg. Units/ Transaction 81 17 NONE 44 23 60 43 66 NONE
Price/Unit $68,158 $65,158 N/A $72,020 $86,957 $73,454 $62,177 $82,057 N/A
Price/SF $74 $77 N/A $72 $111 $80 $70 $79 N/A
GPIM 8.88 8.77 N/A 8.15 9.63 8.28 7.97 8.42 N/A
Operating Expenses (% EGI) 38.22% 34.9% N/A 39.89% 33.50% 43.06% 45.73% 38.26% N/A
Operating Expenses (per Unit) $2,850 $2,571 N/A $3,514 $3,351 $3,480 $3,392 $3,557 N/A
OAR 6.49% 6.80% N/A 6.65% 6.56% 6.54% 6.49% 6.99% N/A
Days On Market 117 299 N/A 216 548 59 64 101 N/A
Typical Salem/Keizer Apartment Financial Indicators
RECESS I ON
6.00%
6.20%
6.40%
6.60%
6.80%
7.00%
7.20%
7.40%
7.60%
2008 2009 2010 2011 2012 2013 2014 2015 2016
Salem/Keizer Multi-family Cap Rates
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New Salem/Keizer Inventory
Since 2014, new apartment inventory totals 1,248 units
Most new development is occurring within South/Southeast Salem
Demand remains high for additional inventory
Salem/Keizer Multi-family Market
Project # Units Location Status
Hawks Pointe III 69 Keizer Under Construction
Skyline 52 S Salem Under Construction
River Valley Terrace 60 West Salem Proposed
Davis Road 134 S Salem Stalled
Chemawa Station 180 Keizer Under Construction
Battlecreek 201 S Salem Proposed
Encore Apts 108 S Salem In rent up
South Block 115 Central Salem Stabilized
South Block - II 53 Central Salem Under Construction
50 Oaks 42 S Salem Proposed
Reserve @ Hawks Ridge 178 SE Salem Stabilized
Hyacinth Street Apts 56 NE Salem Proposed
TOTAL 1,248
SALEM APARTMENT INVENTORY - POST 2014
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Salem/Keizer Industrial Market
Analytics
Overall Vacancy
Absorption
Average Asking Rent
Months to Lease
Cap Rates
Notable New Projects
Analytics provided by CoStar
Analytic Statistics
Properties 659
Existing Inventory 15,463,616 SF
Overall Vacancy 1.9% *without owner occupied space, vacancy is closer to 3%
12 Month Absorption 739,024 SF
12 Month Leasing SF 558,657 SF
Average Rent/SF $5.41/yr or $0.45/mth
Months to Lease 9 months (1st QTR 2016)
Average Cap Rate 10.8% (newer properties trading at cap rates of 7 to 8%)
Under Construction 0 SF
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Salem/Keizer Industrial Vacancy
& Asking Rent
Current average vacancy of 1.9%
Non-owner/user space has higher vacancy of 3%
Current average annual asking rent of $5.41/SF or $0.45/SF/mth
New space is leasing at roughly $6.50/SF or $0.54/SF/mth*
Continued rent growth anticipated as the market quietly accepts marijuana-related tenancy despite strict lending practices
*Courtesy of Sperry Van Ness
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Salem/Keizer Industrial Absorption, Deliveries & Vacancy
Positive absorption has occurred since 2013.
Months to lease is roughly 9 months; however, SVN reports recent listings went under contract within 30 days
Lack of existing large-scale properties readily available for lease
Financing will play a big role in new marijuana-related development
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Salem/Keizer Industrial Sale to
Asking Price Differential &
Average Cap Rate
Tight industrial market is eliminating list to sale discounts, as demand has outpaced available inventory
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Salem/Keizer Notable Industrial Projects &
Transactions
Legalization of marijuana industry is helping to bolster the industrial sector.
Exact occupancy #s are unknown at this time; however, rents typically command a premium of up to twice market rent.
Some developers remain unwilling to accommodate this tenant profile; however, those that are amenable to providing space for this budding industry are reaping the rewards in the form of higher rents and occupancy
After years of vacancy, the former Seneca Cannery (410,000 SF) was fully leased to two tenants in 2015 – Diamond Foods leased 63%
NW Distribution & Storage leased the remainder
Significant TIs and retrofitting ($millions) were necessary to attract the tenants
488 AC Mill Creek Corporate Center will have competition with 190 AC industrial development parcel located adjacent to Winco Foods fronting Interstate 5 in Woodburn. Can accommodate up to 2 million SF.
Look toward 2017.*
Several older large-scale projects were purchased for renovation within the past year Former Sumco North Building purchased by Power Equipment Systems,
who completely renovated the property
Former Pepsi Distribution Center at 3011 Silverton Road NE sold to Ray’s Produce: $1,450,000 or $33.45/SF
New industrial projects south of Fairview Industrial Drive totaling 90,000 SF are in the planning stages –Pre-leasing is ongoing, with asking rents of $6.50/SF.*
*Courtesy of Sperry Van Ness
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Salem Development Opportunities
Oregon State Hospital North Campus – North of Center Street NE; 47.37 AC
Former Toyota/Subaru Dealership - NEC Mission Street & 25th Street NE –Pending sale to single user
Former Delon Automotive Site – 3.49 AC of CB zoned land improved with 37,320 SF of buildings. Poised for redevelopment and one of four potential sites being entertained for a new Salem Police Headquarters
47.37 AC fronting Center Street NE - State
wiling to work with developers to facilitate a mixed-use development
plan that will be mutually beneficial - All but 2
buildings being razed, with the rest remediated.
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Increased population and OSU enrollment have resulted in lack of available housing
Approximately 18,000 people commute into the city each day
Several sales of older single-family houses on infill lots have resulted in land prices in excess of $50/SF; purchased for redevelopment with small student housing projects
Development hurdles with City municipalities stall many larger-scale projects such as Timberhill (200+ AC)
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
OSU Enrollment vs. Apartment Vacancy
OSU Enrollment Vacancy
Corvallis Multi-family Market
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• M a n y l e n d e r s c a n n o t l e n d o n t e n a n t s p a c e o c c u p i e d b y m a r i j u a n a - r e l a t e d b u s i n e s s e s . F r o m a v a l u a t i o n s t a n d p o i n t , t h e s p a c e m u s t b e t r e a t e d a s v a c a n t - a n d s o m e t i m e s p h y s i c a l l y v a c a t e d i n o r d e r t o s e c u r e a l o a n .
• M a n y l e n d e r s n o w r e q u i r e o w n e r o c c u p i e d s p a c e t o b e t r e a t e d a s v a c a n t , w i t h a b s o r p t i o n c o s t s d e d u c t e d f r o m t h e f i n a l v a l u e c o n c l u s i o n .
• This may result in a lower value than anticipated by brokers, buyers & sellers
• Deductions include re-tenanting expenses such as:• Lost rent during the projected absorption period
• Leasing commissions
• Tenant Improvement costs
Appraising for Mortgage Financing Marijuana Occupancy & Owner/User Space
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Powell Banz Valuation, LLCwww.powellbanz.com
Powell Banz Valuation, LLC
Left to right…
Jonathan B. Banz, MAI
Katherine Powell Banz, MAI
C. Spencer Powell, MAI
Jasper (Great Dane)
Sarah Hays
Shirley Layne
Daniel Harms
John Gillem
Austin Wiesner
Kathleen Hendersen
London Fergus
Shelly Montagne
Kat Fitzsimmons
Vada Logan
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